IBM to secure content management lead with FileNet purchase

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IBM Corp.’s US$1.6 billion purchase of content management software maker FileNet Corp. will establish Big Blue as the leading player in the enterprise content management (ECM) space, says one Canadian analyst.

“With this purchase, IBM cements itself as the number one content management company,” according to Joel Martin, vice-president of enterprise software at IDC Canada Ltd. in Toronto.

The IBM-FileNet deal comes on the heels of another big announcement in this space – Hummingbird Ltd.’s acceptance of a US$489 million purchase big made by Open Text Corp. of Waterloo, Ont., Martin said his prediction about further consolidation in this space is being borne out.

This prognosis is shared by another Canadian analyst.

“The acquisition of FileNet is another instance of ongoing consolidation among document management [software] vendors,” said George Goodall, senior research analyst for Info-Tech Research Group in London, Ont.

He said the the market is probably feeling “pretty cramped for other pure-play vendors like Stellent Inc. and Mobius Management Systems Inc.,” said Goodall.

In a press statement issued today, IBM said it’s “definitive agreement” to acquire Costa Mesa, Calif-based FileNet for US$1.6 billion is likely to be closed by the end of the year. (The acquisition is subject to FileNet shareholder approval).

In a statement today, Lee Roberts, chairman and CEO of FileNet said the sale would be a boon to his company’s shareholders. “This transaction offers FileNet shareholders a solid premium over the historical trading prices of our stock.”

The acquisition also builds upon IBM’s “information on demand” project, launched in February this year.

The intiative aims to provide enterprise clients with better data control and is part of the company’s strategy to gain dominance in the ECM market.

“IBM has been seriously moving into the ECM space, by acquiring smaller companies such as FileNet,” said Martin.

IBM said it plans to build on the content management products of both companies and integrate the results into its service oriented architecture (SOA) offerings.

IDC Canada’s Martin said an alliance with FileNet will allow Big Blue to expand its integrated product offering. “FileNet has built into its products an increased video and digital rights management capability.” This feature, he said, offers IBM a head start on where the market is going.”

“With their combined client base, the two companies will have a very strong presence in the financial and government markets as well,” Martin added.

Canadian technology spending in government is expected to swing dramatically towards content management this year.

A recent technology and government survey by IDC Canada indicated a shift in top policy and program priority, from electronic service delivery to more content management.

Goodall said the acquisition is largely about capturing a greater share of the content management market.

The latest IDC Canada statistics on the ECM arena revealed that EMC Documentum was the top player in the field raking in revenues of US$361 million in 2005. Yesterday’s Hummingbird and Open Text alliance brought the two company’s combined revenues to around US$362 million.

FileNet made an estimated US$290 million for 2005 and IBM’s revenues were marked at about US$294 for the same period. Their combined earnings of US$584 million will place them on the top of the list, according to Martin.

Goodall said FileNet and IBM have competed against each other for government and financial industry accounts. “IBM’s Records Manager product – originally developed by Ottawa-based Tarian Software Inc. – competed with FileNet products for years in key sectors such as the government and finance.”

Goodall noted that the product suites offered by the two companies have the same certifications and are architecturally similar. The challenge now, he said, would be developing strategies to address redundancy.

“IBM will have to rationalize the overlapping product functionality,” he said. “It will be particularly challenging to merge FileNet’s repository with IBM’s DB2 database management system and Websphere server application.”

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