In-Depth

IBM Nabs FileNet, Secures its Place in Content Management MarketPlace Holder

FileNet gives Big Blue best-of-breed technology, a huge installed base, and a steady stream of revenue.

• By Stephen Swoyer
• 08/15/2006

IBM Corp. last week ponied up $1.6 billion in cash to acquire enterprise software stalwart FileNet Corp., a vendor which in the early 1980’s helped take document imaging (and subsequently content management) mainstream.

Founded nearly a quarter of a century ago, FileNet developed and marketed a combined hardware and software solution for document imaging. In addition to its innovations in that market, FileNet also designed and sold one of the first commercial workflow-automation products, the FileNet WorkFlo Business System. In addition, FileNet developed the first computer-output-to-laser-disk (COLD) solution, appropriately branded COLD, which helped jumpstart another new product category.

More recently, FileNet had become a prominent player in the enterprise content management (ECM) space, with revenues last year of $422 million.

Big Blue says the FileNet acquisition is its twentieth overall in pursuit of its new “Information on Demand” initiative. (Past IBM acquisitions have included Ascential Software Corp.—for $1.1 billion—along with content management specialists Venetica Software, Green Pasture Software, and Tarian.)

“It’s one of the key strategic priorities for us where information is freed up from different sources and delivered in context to improve either compliance-oriented business processes or workflow-oriented business processes where businesses get significant value moving forward,” said Ambuj Goyal, general manager of IBM’s Information Management division, during a conference call with reporters.

More topically, the FileNet coup marks IBM’s third software-related acquisition since last week, when IBM plunked down $740 million for MRO Software (a developer of asset management software) and privately-held Webify Solutions (a provider of application-deployment software).

ECM software captures, stores, integrates, and manages many kinds of unstructured information—including images, audio and video files, Web pages, e-mails, documents, RFID data, and customer service reports. It’s a burgeoning field: IBM officials say the ECM market today generates nearly $4 billion in annual revenues, with 10 percent growth projected through 2011.

Acquisitions Aplenty

The ECM space has seen a flurry of recent acquisition activity. Earlier this month, for example, legacy access and transformation specialist Hummingbird Systems Ltd., which—in addition to its bread-and-butter Windows-to-Unix and Windows-to-Host connectivity products—has also developed a thriving ECM practice, was acquired for nearly half a billion dollars ($489 million) by ECM specialist Open Text, which Gartner Inc. ranks as the number one ECM vendor globally.

In March, Hummingbird agreed to be acquired by another vendor—Canadian holding company Symphony Technology Group, which offered $469 million to cinch the deal. Then Open Text upped the ante with its offer; the deal was the result of nearly two months of finagling between the vendors.

So was IBM’s move a reaction to Open Text’s triumph? Almost certainly not, analysts say—although it’s possible the Open Text deal (which that vendor first announced in June) may have helped accelerate Big Blue’s timetable.

“I think those two moves were a little bit coincidental. I don’t know that IBM was reacting to [the Open Text acquisition]—that acquisition has been around for quite a while, it was in March that Hummingbird announced they were going to be acquired by [Symphony], after all, and then a couple of months ago, OpenText was saying, ‘We want you,’” says Andi Mann, a senior analyst with consultancy Enterprise Management Associates (EMA). “IBM has probably been courting FileNet for a while now, too, so I don’t think it was a direct result. But I think it might have been a wake-up call for [IBM], too, because they realize that they don’t have, or didn’t have, best-of-breed technology [in this space].”

In last week’s teleconference, Big Blue’s Goyal described that space as content-centric business process management. “[This is] driven by the needs of companies to manage substantial entries of information, not only in relational form but also in formats like forms and images that need to be managed through content-centric business processes,” he indicated.

In spite of its demonstrable information-management and content-management chops, IBM hadn’t yet articulated a compelling story in the content-centric business process management space, Mann says. “You saw it [during the teleconference] with them talking up business process management, the BPM stuff. IBM had a big hole in their information management strategy around that capability of passing content from place to place to place in a structured manner to support the business process,” he explains.

“IBM obviously has the middleware for delivering the information, and with DB2 Content Manager On Demand, they have a pretty good repository for storing unstructured data, but this really does complete that play for them. It gives them the ability to pass information in a structured way from person to person to person.”

Mann sees the acquisition as a huge win for IBM—in spite of its $1.6 billion price tag. “They’re getting really good technology, they’re getting a competitor out of the space, they’re getting a large customer base, they’re getting a steady revenue stream—so [FileNet] fills a very significant hole for IBM,” he concludes.