At the time of Autonomy’s Q2 results last week, a fair few commentators said an acquisition of Open Text was imminent. We know that a large deal is imminent and the enterprise value of Open Text (OTEX) is in Autonomy’s ball park. Plus OTEX – itself a roll-up machine somewhat akin to Autonomy –  isn’t exactly in the rudest of health right now.

On the earnings calls CEO Mike Lynch said Autonomy’s next major acquisition would not be done to buy growth (we have already expressed our thoughts on that), nor would it be done simply because the price is right. It would have to be a strategic move, a game-changer. Well, OTEX isn’t that, in our mind at least. So what would such a deal give Autonomy?

Sure, it would give it practically all the document management business in the legal sector. But so what? Autonomy already has a lot of that via its Interwoven acquisition. It would also bring with it yet more overlapping content management products and a collaboration business being eaten by SharePoint. On the plus side, it would roughly triple Autonomy’s customer base to about 65,000 organizations.

Of course, I could be completely wrong and August 18 could be the date on which that is proved, as it’s OTEX’s Q4 results announcement. That is, if SAP hasn’t got there first.

Still, Tibco or Informatica make far more sense to us as truly strategic acquisitions for Autonomy. But of course, in order to buy something you have to find a willing seller, and we’re not so certain those sorts of companies relish the prospect of ending up inside Autonomy as much as a company that has few other choices might do.

Open Text discussed its acquisition of Vignette on its earnings call this afternoon.  The stated rationale is:

• Add last remaining major ECM play to Open Text’s portfolio.
• Access to Vignette’s customer base, improve service and support (i.e., try to stabilize maintenance revenue).
• Cross-sell opportunities.

My thoughts:

• None of the above is particularly compelling.
• Open Text loves a bargain and apparently this one was too good to pass up.  Backing Vignette’s cash and short-term investments out of the deal, Open Text only paid 1x Vignette’s trailing twelve-month revenue.
• Open Text will maintain Vignette much as it has Hummingbird – keep the products mostly separate, try to hold onto the maintenance stream, cut Vignette’s costs.
• I don’t buy into product or technology-based reasons for Open Text wanting to own Vignette.  There’s tons of overlap.
• There will undoubtedly be some Vignette vs. RedDot struggles at Open Text over which is the WCM line of choice.  Interesting since WCM is only a sideline for Open Text in the big ECM picture anyway.
• A bargain can still bring headaches and there will be WCM competitors lining up to benefit from uncertainty (not that many WCM players seem to spend much competitive energies worrying about Vignette these days).

Our full deal analysis is available for 451 clients.

I commented in late January that there seem to be two schools of thought at the moment on spending in ECM — in that post, I was talking about downturns in ECM spending overall versus serious investment in information governance-related technologies, like archiving, records management and eDiscovery.

The same dichotomy seems to exist in specifically WCM at the moment as well, though for different reasons.

On one side of the WCM coin, we have Vignette, which turned in an ugly Q4, with revenue down 29.4% year over year and license revenue totalling just $7.3m or 19.5% of revenue.   And we have the Autonomy acquisition of Interwoven, which was not primarily driven by Autonomy’s desire to be in the WCM business (here’s Nick’s take on Autonomy’s drivers).  We’re not saying Autonomy won’t invest in WCM, it’s too early to make any kind of judgement on that.  But nobody is pretending Autonomy would have bought Interwoven if it didn’t have the WorkSite and Discovery Mining businesses and expertise in the legal industry.

On the other side of the coin, we have FatWire, which yesterday announced 40% year-over-year revenue growth in 2008 taking it to $44m.  This is the first time FatWire has publicly announced a revenue number, clearly it thought it had something worth bragging about (I was pegging FatWire’s 2008 revenue at about $40m, so it beat my not-entirely-informed estimate).

Obviously FatWire is a good deal smaller than Interwoven and Vignette and is growing from a smaller base.  Still, it reports an overall strength in the market domestically and internationally that is intriguing.  And it’s not alone in noting strength in the sector — Sitecore made a similar announcement back in November.

Is WCM a strategic investment you have to make when IT budgets are tight?   More and more business is certainly done on the Web, customers spend more time researching buying decisions on the web, a lot of Web sites are in need of update, it’s a less expensive marketing channel, and so many companies can’t afford not to invest.

The counter argument to this was articulated, ironically, by Open Text CEO John Shackleton on the quarterly earnings call when he was asked about the Interwoven transaction.  He said:

…one of the concern areas would be in the web content management where like most managers if someone came to me and said our website is looking a little old. We need to spend $1 million to clean it up. I wouldn’t see that as a must-have. So what we’re seeing is it’s not critical, people are putting off those decisions to upgrade their websites. I would see that Interwoven like our web content products is seeing some softness in the market.

That from a vendor with WCM in its portfolio, though it’s hardly the company’s focus.

So what do you think?  Is FatWire simply absorbing some of the business that would have gone to Vignette and that’s enough to support the growth it needs as a smaller company?  Or does WCM have some legs in a tough 2009?

There seem to be two schools of thoughts at the moment on how ECM vendors will fare the tightening of IT budgets.

On the one hand, few doubt there is increased legislation and regulation headed our way on a global basis, particularly in financial services and government, and this could be a boon for ECM vendors that sell document and records management systems for compliance purposes — IBM, Open Text, EMC, HP to name a few.  Litigation related to events of the past four or five months is also likely, making the need for eDiscovery tools that can help organizations more cost effectively deal with discovery requests for electronic information more dire.  The vendors listed above, along with a host of others, certainly see growth opportunities in eDiscovery (this was a big part of Autonomy’s rationale in picking up Interwoven last week).

But on the other hand, IT spending is taking some big cuts and ECM vendors aren’t going to be immune to this.  In October, we noted data from our survey partner ChangeWave that forecast declines in ECM spending in Q4 and we’re watching some of those results come in now.

EMC’s Q4 revenue for its content management and archiving (CMA) division declined 12% year-over-year, with license revenue down 30% in the quarter.  For 2008 as a whole, EMC’s CMA division did grow 2%.  Interwoven’s Q4 revenue held up ok, with 11% revenue growth and 6% license growth; about half of this is typically Web content management revenue though, a different market from the traditional ECM and compliance-related stuff discussed above.  (There’s no way to break out IBM and Oracle’s ECM-related revenue, unfortunately).

Open Text announced its fiscal ’09 Q2 earnings yesterday, with revenue up 14% year over year to $207.7m and license revenue up 18%.  Open Text has been beating the compliance drum for awhile now (it was perhaps pushed here earlier as its initial strength was more in the realm of collaborative document management, SharePoint’s target market), and may be benefiting from that most now.  (With ongoing success in this range and high interest in compliance-related markets, we continue to ask if/when Open Text will be open to a deal itself).

Compliance/records management/eDiscovery hasn’t necessarily been the number one sales driver for most ECM vendors (except for Open Text which has tied 70% of license to “compliance” in recent quarters).  Growth in these areas will have to make up for potential shortfalls in other tried-and-trued areas of ECM — the transactional content apps for things like loan originations, account enrollment, claims processing, drug approvals and myriad other types of business-specific apps for which organizations use ECM.

These vendors are also still figuring out how to deal with SharePoint in the market.  While most have a more realistic view of what SharePoint is and isn’t in the market at this point (it is increasingly a standard layer for basic content services but it’s not full ECM for compliance or transactional apps, at least not yet) and have developed some nuanced strategies for co-opetition with Microsoft, there’s still little doubt Microsoft has taken some ECM business that previously went to bigger, more sophisticated document management products simply because there weren’t other alternatives.  A new version of SharePoint expected as part of Office 14 late this year / early next could also see a lot of customers pushing off decisions in this difficult 2009 to “wait and see” what SharePoint.next has to offer.

If you missed it, there was an article from CNNMoney earlier this week on Open Text and spending in this sector.

After my post earlier this week on whether or not “ECM” will continue as a useful and valid market category, it was interesting to attend an analyst day held yesterday by Open Text here in Boston.  Open Text is a poster child for ECM with nearly all of its business coming from content-related products — document management, records management, archiving, WCM, capture/delivery & collab.

As the largest independent in ECM, it’s certainly in Open Text’s best interest to pursue and preserve ECM as a market category and it is doing so.  “ECM” is featured prominently in the company’s basic About text, it tags itself “The Content Experts” and last year renamed its long-standing user conference from LiveLinkUp (a reference to its flagship Livelink product) to ContentWorld.  Execs also claimed at the event that they see more customers coming around to the idea of enterprise content management — not in a way that is driven by a single repository or even suite, but as a set of practices and processes that must be in place for compliance and to mitigate risk and cost.

I think what remains to be seen is whether these compliance and risk-related content management practices eventually fall under an ECM bucket from a market perspective.  Certainly not all vendors that sell pieces of technology in support of these practices (like archiving or records management) sell themselves as ECM, since ECM carries with it the connotation of transactional document management apps.

As a clear-cut ECM vendor, Open Text wants to compete in a clear-cut ECM market, even if competition is becoming broader and more varied.  Is it big enough to define the category if other, larger vendors meld archiving, records management, eDiscovery and so forth into ‘information governance’ or some other, governance-related, non-transactional sector?  Other independents like Interwoven and Hyland Software are a good deal smaller than Open Text and don’t talk as much about ECM as they used to.  They’re choosing instead in most case to focus on their areas of strength (e.g., WCM or document management) and staying out of the line of fire of larger ECM competitors like IBM, EMC, Oracle and Microsoft.  And I think these larger vendors are somewhat conflicted as to whether or not they want to hang an ECM banner on a broader collection of products.

One other note about Open Text’s analyst day.  In contrast to events like this one held by other vendors, where, as we’ve noted before, it’s often difficult to miss the executive turnover from the prior year’s event, Open Text is refreshingly consistent.  It’s the same folks year after year, the titles shift around sometimes but the exec team appears to see little change.  One exception to that this year was the appearance of Lubor Ptacek, long of EMC Documentum, who turned up as a VP of product marketing.

We knew Open Text had more acquisitions planned, the company said as much on its most recent earnings call.  Buying Captaris will give Open Text improved fax and document capture capabilities, which are most interesting for Open Text when tied to enterprise apps from SAP and Oracle for outbound faxing of invoices and purchase orders coming from those apps.

Open Text has bid $4.80 per share of Captaris, valuing the vendor at $131m.  Brenon Daly looks more at the financials of this deal over on the 451 Group’s tech M&A blog, Inorganic Growth. For 451 Group clients, our full deal analysis is here.

After two small deals earlier this summer (for Spicer and eMotion), this is a bigger acquisition for Open Text and one that may slow it down a bit on the acquisition front, as Captaris had a few recent acquisitions of its own to digest.   Open Text is no stranger to assimilating acquired portfolios but it’s still no small task.  As usual, Alan Pelz-Sharpe at CMS Watch does a great job outlining the potential pitfalls for customers.

Another interesting angle though is that Open Text has made a larger acquisition and it wasn’t of Vignette.  There’s been speculation like this about such a deal and we don’t doubt Vignette is in play.  This acquisition does make it seem less likely that Open Text will go for Vignette anytime soon.

Still, if approved, this deal should leave Open Text with at least $100m in cash and an apparent mood to buy, so there will likely be more (smaller) deals to come.

We covered two small acquisitions in the ECM realm this week (for 451 Group clients, our TechDealmaker service has (or will have shortly) the full deal analysis reports),  Open Text’s purchase of the file format viewing division of Spicer Corp. for $12m and Hyland Software’s Liberty IMS buy for an undisclosed sum.

Neither of these deals, which are both small, is all that interesting in and of itself.  Open Text is getting a bit of technology to view CAD files, large schematics and other large and complex files without having the software used to create those files installed locally.  This is a good addition to Open Text’s line, particularly as it looks to sell more vertically-customized apps in markets like energy and construction.  Hyland has purchased a small competitor in the SMB market, mostly to expand its customer base in a few key verticals.

What is interesting about these deals, aside from the fact that they closed on the same day at a time when acquisitions aren’t exactly booming, is that they both come from independent ECM vendors looking to carve niches for themselves in a market increasingly dominated by the likes of IBM, Microsoft, Oracle and EMC (though Hyland is majority-owned by PE firm Thoma Cressey Bravo).  Both have indicated that there will be more acquisitions ahead as they look to secure their positions and future acquisitions by both vendors are likely to be more of the same.

Open Text and Hyland operate on different scales — Open Text’s revenues in calendar year 2007 were $677.8m while Hyland’s were $104m.  Open Text is also securely in the enterprise market while Hyland plays more at the mid-tier and in the SMB market, though the two do compete sometimes in government accounts and for accounts payable apps.

Hyland appears to be  more aggressively on the acquisition trail at the moment, noting as part of the Liberty IMS announcement that plans are to “more than double our size in the next three years” via both inorganic and organic means. But Open Text has also indicated repeatedly that it will do ‘tuck-in’ technology buys, like the Spicer acquisition.

Open Text and Hyland aren’t the only independent ECM vendors remaining nor the only ones likely to make acquisitions in the near future.  Interwoven and Vignette are also here.  Both made technology buys in the past year, Interwoven bought multivariate testing vendor Optimost for $51m last October and Vignette parted with just $7m for the assets of video delivery service Vidavee in April.  These buys indicate that these two are more interested in Web content management (WCM) at the moment, even though both have broader product lines, and future buys will most likely continue to fill out WCM portfolios.  This is in contrast to Hyland and Open Text, who are both likely to stay more to document management, records management and BPM-related acquisitions.  But none of these vendors is likely to make a major buy.

That said, these vendors themselves are perennial potential acquisition targets. Thoma Cressey Bravo may be fattening Hyland up for an eventual sale, but it will likely look to consolidate more of the mid-tier ECM market first.  But the others – Open Text, Interwoven and Vignette – could themselves be up for grabs by giants like SAP or HP.  In either case, we’re far from done with ECM acquisitions.

After four and a half days, twenty meetings, one heat wave and lots of hot tea (too much A/C), the second Enterprise 2.0 show is over. It’s a lot to cram into a summary-style blog post but here it goes:

What was interesting (mostly chronological and certainly not comprehensive):

• Microsoft vs. IBM demo-duel on Monday and the buzz that carried through the week about it (people were still asking me today what I thought). General consensus? IBM knocked it out of the park but it probably doesn’t matter too much in the grand scheme of things.
• IBM’s indication that it will include full RSS feed aggregation technology in the next version of Lotus Connections — not the 2.0 version that is just now shipping but the one that is likely to ship at this time next year. Discussions on the show floor last night with some IBM folks lead me to believe there is still some uncertainty as to what this actually means but Jeff Schick, IBM Vice President, Social Computing Software told me in a one-on-one meeting yesterday that IBM will go full-bore into feed aggregation in the next release.
• Demo of NewsGator Social Sites. I’ve seen this before but it was interesting to see it on Monday afternoon, just hours after the Microsoft folks gave what can only be described as a weak SharePoint demo. Why didn’t they show Social Sites, since they included other partner technologies?
• Discussion with Rob Curry of the Microsoft SharePoint team. He noted that for the next version of SharePoint (expected late in 2009 as part of Office 14), they doubled the development teams on ECM and social software. I told him I thought feed aggregation and wikis are the most obvious areas in need of major advancement in SharePoint and he would only say I would be ‘pleased’ with the next release.
• Meeting with Tom Jenkins, Chief Strategy Officer at Open Text. Open Text had a big presence at the conference this year, an indication of the degree to which it has re-entered the collaboration market after several years of near exclusive focus on archiving, records management and compliance. What this means for the company’s SharePoint integration strategy remains to be seen.
• Jabs traded by Sam Lawrence of Jive Software and Lawrence Liu, SharePoint Technical Product Manager at Microsoft on a panel yesterday about social computing platforms. The content itself wasn’t all that interesting but at least Sam added some humor and Lawrence is an eminently good sport.
• Catch-up meeting with Atlassian and a discussion of how Confluence, JIRA and Atlassian’s other developer tools tie to a single sales strategy to technical teams. This was followed in the general ballroom by a session given by Ned Lerner from Sony Computer Entertainment, which showed, among other things, how core Confluence and JIRA are in their game development processes.
• Socialtext SocialCalc — this is interesting though I haven’t yet had a chance to view the demo.
• Open source panel this morning.

What wasn’t:

• Too much discussion of cultural change, barriers to adoption and best practices. These are all useful and much-needed topics, don’t get me wrong. But most of the sessions I joined on Tuesday and Wednesday were variations on these themes. I didn’t go to all of them to be sure, but I went to more than a few and seemed to be hearing much of the same content over and over. As Vishy put it: “If anybody says viral one more time I’m gonna sneeze.”
• I was hoping for more discussion on integration strategies, platforms vs. point tools, profiles / identity management, standards, deployment in customer-facing environments and so forth. A layer or two deeper I guess than most of the sessions went. Maybe next year we’ll all be more able to have those conversations.
• And speaking of next year, there were too many demos and vendor pitches this year that were extremely similar. How many will return next year? Or the year after? For that matter, for how many years will there be an “enterprise 2.0” conference before this stuff just becomes everyday?
• Most of the more technical sessions were held today, Thursday the final half day of the conference after many folks were gone.
• Like last year, most of the sessions were way too crowded with every seat filled. That’s a good thing for the vendors and the conference organizers, but not too comfortable or enjoyable for those in attendance.

That makes a longer list of things that were worthwhile than those that weren’t, making it, I would say, a well spent week. And there were lots of great hallway chats and opportunities to catch up. To anyone I was supposed to meet at some point and did not, please leave a comment or contact me directly.

We have long wondered why more content management vendors don’t fully embrace text analysis (or even enterprise search for that matter).

These guardians of most organizations unstructured data were beaten to the punch in terms of exploiting text by business intelligence companies, which are more accustomed to manipulating structured data. It’s great that the BI companies are starting (slowly) to embrace the idea of unlocking the value locked within unstructured text, it’s somewhat bizarre why content management vendors didn’t get there first.

We said this many years ago, in the most coherent form in mid 2005 with our report called Text-aware applications: the endgame for unstructured data (the clue’s in the title).

In report that we said:

“…while the penetration of content management systems is relatively high when compared with other ways of managing unstructured data, these systems do little at present to help analyze that unstructured data.”

and somewhat optimistically:

“Indeed, despite the CMS’s [content management systems] ability to organize, most implementations rarely attempt to push into anything that could be considered a semantic understanding of the content. This may be set to change, however, with some vendors, such as EMC, making headway in automatically parsing documents at a deeper level than just file-level metadata.”

That was a tad premature on our part.

Think about the main players and what they do to understand what resides in the documents they ‘manage.’

EMC Documentum – it has its content intelligence services classification engine sure, and it bought a federated search product many moons ago, but neither are exactly front and central to its product strategy. And ILM (try searching on that now at EMC and see what you get) only dealt with file-level metadata, not semantic metadata. However the X-Hive acquisition was an interesting one from this standpoint (see below for more on XML databases).

Vignette – bar an OEM relationship with Autonomy (which most vendors have) nothing much doing here despite the need for Web content management to increase its understanding of the text its managing to make websites more attractive to advertisers (think of using text analysis to build links to other content automatically to keep visitors on the site longer).

Interwoven – Metatagger isn’t exactly at the bleeding edge any more, although the idea is sound.

IBM Filenet – here there is hope. IBM has taken a classifier it got from its iPhrase acquisition and used it to do initial classification to help determine what should or should not be deemed a record. IBM has all sorts of text analysis toys to play with and we expect more from it in the future.

Open Text – it once had five search engines, and was a pioneer in that space. But I’m not aware of anything it does to extract meaning from the content it manages.

Autonomy – Its tagline is ‘Meaning-based computing.’ It owns a powerful classification engine but now also owns records management and a bunch of other stuff. It’s the one company that checks most of the boxes here (but isn’t a document or Web content management vendor). But as the company currently refuses to talk to us, we’re in the dark as to which bit fits where and are unable to tell our clients what benefits Autonomy could bring them as a result. If the company cares to get in touch with me, I’m here.

This post was prompted partly by a recent conversation I had with Nstein . It is morphing from being a struggling text analysis vendor laden with debt (it’s publicly traded in Canada, so the numbers don’t lie) to a fast-growing combination of Web content management, digital asset management (via acquisitions in 2006 and 2007) and text analysis, built atop an XML database licensed from IxiaSoft. Its focusing exclusively on the largest publishing companies, using the text analysis to automatically create links between new and archived content (thus pushing it up Google rankings). It competes with Mark Logic and Interwoven, mainly.

Any Gmail user that looks in their spam folder and see ads for “Spam Swiss Pie – Bake 45-55 minutes or until eggs are set,” can appreciate how crude keyword matching against content is next to useless.

There’s so much more that can be done here and so much insight being left on the table, whether it be in better website management to attract readers, voice of the customer analysis tied to BI, or government intelligence.

Tools that manage content need to understand that content – its language, its meaning, its sentiment. Otherwise, they are missing a trick.

Just catching up on feed reading (impossible) after being out at AIIM so much last week and saw Dennis Byron’s post at Seeking Alpha about enterprise content management investment opportunities. He looked at the AIIM show floor through the lens of the public markets and found few investment vehicles, at least at present. He missed one or two – consolidation in 2006 did take Stellent and FileNet off the public market, but Open Text, Vignette and Interwoven remain (these last two were absent from the AIIM show floor).

Byron also identifies the right prospects for a year or two out. Alfresco (open source) and SpringCM (SaaS) both had big booths at AIIM and are two of the most interesting companies to watch in ECM at the moment. Alfresco may be a bit further along — John Powell, Alfresco’s CEO, is on record saying 2009 is a target for an IPO. But the two are comparably sized with 70ish employees and probably something like $10m for a bookings run rates (both have annual subscription models).

This is of course peanuts to the Microsoft, IBM, Oracle and EMC crowd that dominates ECM these days but may point to the future nonetheless — or at least a future. We consistently hear from traditional ECM players that open source and SaaS don’t come up much competitively, which I think is an indication that change will be slow in coming. It’s also a reminder though that “ECM” is a fractured market with many sub-sectors and room for many players (SpringCM and Alfresco don’t really compete, for example, even with business models aside). Success of new vendors and models doesn’t necessarily displace established ones particularly in ECM, which means many things.