In the latest move to round out its Information On Demand concept, IBM Corp. today announced that it will acquire enterprise content management (ECM) provider FileNet Corp. of Costa Mesa, CA.
The cash deal, subject to the approval of FileNet's shareholders and expected to close in the fourth quarter of 2006, is valued at $1.6 billion. The value is based on a per-share price of $35; FileNet's stock closed the day up $1.52 to $36.17 on news of the agreement.
What IBM gains from 24-year-old FileNet, according to analysts, is a broad stable of customers and a company that is seen as a leading enterprise content management (ECM) vendor that can help the industry giant extend its existing ECM offerings. FileNet's anchor product, the P8 platform, helps manage the document-based data, or workflow, that attends the interactions between people within an organization.
FileNet's footprint among manufacturers is relatively limited, said Jim Murphy, a research director at AMR Research in Boston. Where FileNet's P8 product has been adopted, "It's being used to help store and manage manufacturing diagrams ... rich, complex information," he noted.
Overall, IBM picks up 4,700 customers from FileNet. Manufacturing customers include Accushnet (known for the Titleist brand of golf products), Boston Scientific Corp., Johnson Controls, and Techtronix, according to FileNet's website.
"I think that there's definitely some overlap between their products, but it gives [IBM] more options to sell within their Information On Demand stack," said Barry Murphy, a senior analyst at Forrester Research Inc. in Cambridge, MA.
IBM's Information On Demand (IOD) initiative is in part a drive to take advantage of an ECM market that is predicted to grow at a 19% compounded annual rate and reach $3.9 billion by 2008, according to Forrester's research.
On a conference call with the media to announce the acquisition today, Ambuj Goyal, general manager of Lotus Software for the IBM Software Group, deemed the FileNet pick-up "a very strategic and significant" deal. Announcement of the proposed acquisition came one week after IBM disclosed plans to purchase MRO Software Inc.
"Content management is a key element of [IBM's] Information on Demand" vision, he said. "All types of content are becoming more actively leveraged" for various tasks and processes across the enterprise, he noted.
As manufacturers struggle to keep their bits and bytes in line, the data colossus that characterizes the modern enterprise continues to grow. Manufacturers must integrate more suppliers' schedules into their own virtual calendars, bills of materials grow ever more robust, and design iterations increase as technology enables greater collaboration across businesses. Megabytes become gigabytes, which stack up to terabytes and beyond.
And yet, if a regulatory mandate demands specific information, manufacturers want that data at their fingertips, regardless of whether it must be drawn from three different systems of record or three fiscal years across the last decade. An enterprise content management solution works in the background, categorizing and providing access to such data like a Dewey Decimal system for today's business needs.
IBM put in place the umbrella for its IOD product suite in 2004 when it purchased Venetica. The technology that Venetica brought to the table, now called the Information Integrator Content Edition, creates a content integration layer that sits atop a company's applications and interactions. Prior to that, IBM was limited to managing information within its own DB2 database. Venetica's software allowed IBM to draw from unlike databases such as Oracle's, HP's Microsoft's.
Forrester's Murphy said this technology has moved IBM toward the paradigm of a "big virtual repository" that aggregates the contents of database repositories underneath it.
He noted that while the integration of FileNet's products comes close to closing the loop on IBM's IOD vision, it does not seal the deal. IBM currently offers the Workplace Web Content Management tool, for instance, "but it's not strong," Murphy said. Perhaps not coincidentally, FileNet has a partnership with Day Software, which boasts a strong Web content management product, he said, and has customers across a range of manufacturing industries.
As for the competitive landscape, he said the FileNet deal sends "a ripple through the industry." He noted that Open Text's announcement last week that it will acquire ECM rival Hummingbird for $489 million is interesting, but that the real action is elsewhere.
According to Forrester's Murphy, "what IBM is doing is basically saying, 'This stuff, content management, is becoming the domain of big software infrastructure vendors,' and [the FileNet deal] just shows that the dominos are falling. Oracle's going to have to make its move, EMC's going to have to make its move, which it started to do [through its acquisition of Documentum]. And to some extent, Microsoft will have to make some kind of move as well."
EMC, he said, is close to IBM in the pursuit of market share, and Oracle has the ability to place itself among those forerunners if it wants to move that way. "But I think certainly in terms of the messaging and the maturity around their product, I think this does put [IBM] in a bit of a league of their own."
AMR's Murphy concurred. "I think the acquisition was about getting some good customers, and it's also about taking out a competitor and being able to focus on the other competitors. They're edging out Oracle before Oracle is even a major player in this market."
The move should spur more consolidation in this space, Forrester's Murphy predicted. "What you'll see is other ECM pure plays now being gobbled up -- the Interwovens, the Vignettes, Stellents -- becoming part of other infrastructure vendors. And I think, outside of just the traditional content players, you might see CA and SAP stake a claim as well."
IBM will incorporate FileNet fully into its corporate structure, Goyal said on the conference call. Lee Roberts, CEO of FileNet, will stay with the company, which will remain largely intact operationally. Roberts said FileNet will maintain its product development centers around the world, and said he expects "a vast majority" of FileNet's 1,800 employees to make the migration to the IBM workforce.
Neither Goyal nor Roberts would discuss the expected impact of the deal on IBM's revenue going forward. For its last full fiscal year, which closed Dec. 31, 2005, FileNet reported revenues of $421 million.