Is it growth or consolidation?

IBM has announced its intention to acquire FileNet by year-end for approximately $1.6 billion in cash or about $35 per share. What does this mean to the enterprise content management (ECM) industry? Is it shrinking and consolidating? Is it growing and becoming more competitive? The motivations and fallout from this planned acquisition will be more apparent in coming months.

According to IBM, the acquisition of FileNet aims to further the company's Information on Demand initiative, IBM's strategy for addressing this growing market opportunity.

Ambuj Goyal, general manager of information management for the IBM Software Group, observes, "It's no longer about bringing content together, but leveraging it for compliance and process reasons." Certainly compliance, governance and litigation readiness are key drivers for organizations, much more so than they were even a few years ago.

According to Steve Weissman, chief analyst at Kinetic Information, "IBM enhances its ability to do this (leverage content) for its customers, both by taking a competitor out of the mix and by obtaining outside tools and best practices that it can combine with its own. Even if some of what it acquires turns out to be redundant or irrelevant, IBM has declared its commitment to the market in a way it could not otherwise do, and that can go far toward capturing customers' hearts and minds."

Lee Roberts, chairman and CEO of FileNet, believes the market is increasing. "The growth in enterprise deployments of ECM and BPM technologies is fueling a global market expansion," he said when the acquisition was announced.

IBM and FileNet competitors have their take on the IBM move. "The consolidation continues in ECM--that's no surprise to anyone," says Kirk Roberts, executive VP of products, solutions & marketing at Open Text. "In just a few weeks, the competitive landscape has been completely transformed with two major deals: our proposed Hummingbird acquisition and IBM's announcement."

Whitney Tidmarsh, VP of strategic marketing at EMC, which acquired major enterprise content management provider Documentum in 2003, has her doubts about IBM's ability to succeed in consolidating product lines and delivering value.

"EMC sees IBM's acquisition of FileNet as validation that the market is seeking to buy content management from large IT solution providers. While an interesting growth move by IBM, the complexity introduced by overlapping products will require a costly, services-led approach to address implementation," Tidmarsh says.

That is somewhat ironic, because EMC's strategy has been one of relentless acquisition rather than organic growth, with major ECM acquisitions including Documentum, capture vendor Captiva, optical storage software provider Legato, enterprise rights management provider Authentica and others including ProActivity, Interlink, Internosis and RSA Security.

Weissman is not terribly surprised by the recent move, but by the fact that IBM is making it. "FileNet's acquisition was not wholly unexpected, as the company has been largely successful for many years, has achieved meaningful size and in many ways stood alone as a cornerstone competitor once EMC acquired Documentum. However, it is somewhat surprising that it is IBM doing the acquiring, for Big Blue already has a presence in the ECM and BPM spaces, and, by both companies' admission, shares product capabilities, target markets and customer bases with its new possession," he says.