ECM Market Spinning Its Wheels

Change the name of the Document Imaging Report to ECM Report, as Bill Forquer of Open Text suggested at the recent AIIM show in Philadelphia. Well, maybe not yet, but we admit we are finally starting to see some value in the concept of enterprise content management (ECM). I’ll take that back. Maybe we have seen value for awhile, we just never saw enough rubber hitting the road. I mean how many organizations have the foresight and the wherewithal to integrate their electronic documents, document images, e-mail, collaborative projects, video, archiving, and maybe even the kitchen sink under the umbrella of a single application?

Very few to date, according to Martyn Christian, chief marketing officer for ECM titan FileNET. “Only 2% of Fortune 5000 companies have made a decision on an ECM platform,” Christian told DIR. “Even those who have, do not have their ECM applications fully deployed. However, there is a call going out to manage information on the ECM level. A lot of businesses are going to be making their ECM decisions over the next eight years.”

Christian and Forquer, of course, have vested stakes in the adoption of ECM. Count them among those who feel a wave of ECM adoption is inevitable. “There is going to be an inflection point in this industry,” Christian told DIR. “The real question is, when is it going to happen?”

“I’d say people are plotting their ECM strategies right now,” said Forquer, the executive VP of marketing for Open Text. “While they are still writing checks to address a single pain point, they are making their software choices based on the overall solution a vendor has. Whereas before, end users may have considered best-of-breed strategies for ECM components, they are now trying to line up their solutions in areas like document, records, Web content, and digital asset management and archiving.”

We asked Forquer why, with all the emerging standards and platforms in the area of Web services, is it so important for end users to move away from best-of-breed platforms. After all, aren’t Web services designed to facilitate easy integration of several applications? We noted that the month before AIIM, Open Text made an announcement about its support of JSR 170, a java-based standard designed to produce “corporate-wide access to information no matter where it resides.”

“JSR helps with content integration, but it’s not a panacea,” said Forquer. “The problem Open Text is trying to deal with is much bigger than what can be accomplished by JSR 170 or Web services in general. Web services represent an important evolution that lowers integration costs for the ECM industry. We are in step with every other vendor in embracing them.

“However, we believe that, when it comes to an ECM suite, end users want to buy a solution integrated 80% out of the box. Web services are important for integrating the extra 20% largely through configuration, as opposed to writing code.”

Hyland Expanding ECM Components

A.J. Hyland, president and CEO of imaging and workflow specialist, Hyland Software, said his company has also embraced Web services. “The key to Web services is not necessarily being able to communicate with other parts of an ECM suite,” he said. “Although many large customers have legacy document and records management systems they may want to communicate with, Web services are really about being able to communicate with line-of-business applications like ERP and CRM. Also, as a Microsoft-centric shop, Web services enable us to communicate with java-based components.”

As Hyland Software (whose revenue hit $50 million last year) continues to grow, it also is embracing more elements of an ECM platform. “We recently signed our 5,000th customer,” A.J. touted proudly. “And, we are continuing to roll out products to round out our ECM suite. We are going to introduce version two of our records management module, and we are seriously looking at improving our e-mail archiving and collaboration functionality. We also plan to introduce Web content management (WCM) next year.

“We won’t necessarily have best-of-breed products in all these areas. For example, if we go up against a pure play WCM vendor in a pure WCM environment, we will probably lose. Similarly, with our current product line, our COLD product won’t win in a pure-play cold situation. However, our integrated ECM suite will continue to offer the benefits that currently separate us from our competitors. These include lower cost of ownership, easier and faster deployment, and flexibility.”

Where’s The ECM Sweet Spot?

As early embracers of the ECM concept, FileNET and Open Text already have a lot of the technology Hyland is only now exploring. Interestingly, despite their wider breath of offerings, neither FileNET nor Open Text has shown any significant growth in revenue from software licenses in the past year and a half. For 2004, at least, Hyland reported a 30% growth in this area.

Does this indicate that Open Text and FileNET perhaps crossed the chasm from document to enterprise content management too soon—like before customers were ready? It’s easy to see why they would have been tempted to make this move based on what the analysts were saying about projected ECM growth a few years back, and the impressive customer bases each company assembled over its years as a point solution provider. They were just following the old adage that it’s easier to sell to existing customers than to forge new relationships.

According to Christian, “FileNET doesn’t even focus on businesses with less than a billion dollars in annual revenue. We have a customer base of 4,500 businesses, and each one of those is less than 10% penetrated with ECM technology. We commissioned a study a couple years ago that told us 80% of worldwide IT dollars are spent by the Global 5000, so we think we are in the right market.”

Forquer also talks about the potential for Open Text to cross sell technology between its two distinct customer bases—those using its legacy collaboration and Web-based EDM solutions and those using the archiving technology Open Text picked up with the acquisition of IXOS last year [see DIR 11/7/03]. So, why aren’t Open Text and FileNET growing?

Captiva Software CEO and amateur (based on his day job, maybe he’s a ringer) market analyst Reynolds Bish has an interesting theory about stunted ECM growth. “Over the past year, the document capture space has definitely enjoyed a higher growth rate than the ECM space,” Bish told DIR. “I think Sarbanes-Oxley has provided a lot of impediments to people installing ECM. ECM is a large-scale application that touches a lot of people and processes. Who is going to do something like that when they are wrestling with Sarbanes-Oxley compliance?”

According to FileNET’s Christian, the problem is even bigger than Sarbanes-Oxley. “Forget the ECM market and look at the bigger picture of the enterprise software market in general over the past four years,” he told DIR. “Except for a couple exceptions like SAP, promises of growth have been higher than what people have delivered.”

So, while the larger ECM vendors like FileNET and Open Text wait around for the Fortune 2000 to make their ECM plays, smaller vendors like Hyland, Westbrook, and DocuWare (to name three that we’ve spoken with in recent weeks), have been cleaning up selling document imaging systems to the mid-market—an area historically grossly underserved by our industry. John Mancini, president of AIIM (the trade association), likes to talk about an “explosion in the adoption of ECM technologies among mid-market businesses.”

Which brings us to the question, are Open Text and FileNET missing the boat, or is it just taking awhile for their ship to come in? It’s probably a little of both. As we said in the lead, we are starting to believe ECM is a good strategy. There are a number of reasons for this. The main one is that people have finally embraced the concept of document management. ECM, which really just encompasses more types of unstructured information, is the natural next step. However, trying to fully document an ECM system’s benefits to a Global 2000 organization is no easy task. As Bish stated, ECM just touches so many people and processes. Frankly, we’ve had a hard time getting our arms around it for years.

Maybe, just maybe, the pioneering adoption of ECM will occur in the mid-market, among companies that don’t have as many employees and processes. And maybe after these companies start doing ECM successfully and reaping its benefits, the big boys will feel pressure to move. Then, that inflection point that Christian talks about will kick in, and FileNET and Open Text will start growing again.

But, in the meantime, it seems to us that a company like Hyland will keep gaining momentum. And maybe, just maybe, the goal that founder Packy Hyland, Jr. shared with us back at AIIM 1999, about his company being as big as FileNET, won’t seem so outrageous. Yes, ECM is coming, and despite their best efforts to protect themselves against a game changing inflection point (and even their attempts to ride this inflection point) the longtime leaders in the document management space could be in some trouble. We’re not saying they’re going to go out of business, but mid-market players like HP, Microsoft, Dell, and even, dare we say Hyland, might be sitting in the proverbial catbird’s seat.

For more information: http://www.opentext.com; http://www.filenet.com; http://www.onbase.com

Imaging Driving ECM Sales

The upper crust of the ECM market may finally be feeling the effects of the document imaging explosion we’ve been observing in the mid-market for the past year or so. Recent second-quarter financial reports by Open Text, Interwoven, FileNET, and Vignette tell an intriguing story. It may just be coincidence, but it seems worth noting that both FileNET and Vignette surpassed expectations, while Open Text and Interwoven fell short of theirs.

Why are these parings significant? Well, FileNET and Vignette both possess well-regarded, high-volume imaging and workflow-based technology [Vignette through its acquisition of Tower Technology last year, see DIR 2/6/04]. Open Text and Interwoven, on the other hand, have the majority of their businesses rooted in electronic-based document management. When you factor in that capture specialists Captiva and Dicom (parent of Kofax) continue to post impressive numbers, it results in our hypothesis that document imaging is currently a major driver in the ECM market.

There are several reasons why, most of which we’ve already discussed in the pages of DIR. One is that we firmly believe people have given up on their utopian hopes of creating paperless offices entirely based on electronic documents and e-commerce. They have accepted their paper problems and are adopting scanning to handle them more efficiently.

Related to this is the increasing desire by businesses to finally get paper under control for compliance reasons. Having accepted the fact that they are stuck with paper, they are simultaneously feeling pressure from regulatory bodies and investors who are pushing them to improve their records management practices. These improvements often come in the form of document imaging.

Also, as we discussed in our June 17 issue [see “ECM Market Spinning Its Wheels”], increased adoption of imaging in the mid-market may be forcing larger companies to consider document scanning more seriously for competitive reasons. Improved ease-of-use and increased end-user familiarity with scanning are other factors driving imaging’s adoption across the board.

And in this case, “across the board” is not a throw-away phrase. FileNET Chairman and CEO Lee Roberts particularly cited the company’s balanced success in several verticals as helping to drive its second-quarter results. While financial services continues to be FileNET’s leading market, the company also received significant contributions from the government, insurance, manufacturing, and health care sectors. The latter two verticals have been gaining traction over the past couple years with almost all imaging vendors.

Yes, document imaging is evolving from a niche technology, confined to the back offices of a couple industries, into an application gaining mainstream adoption—even in the front office through its adoption on MFP/digital copiers, the recent astronomical increase in the sales of workgroup (sub $2,000) document scanners, and increased adoption of scan- and fax-to-PDF technologies. On FileNET’s recent conference call, Roberts stated, “ECM is becoming a platform decision, much like the database was several years ago.” And right now at least, imaging requirements are driving a good bit of that platform selection.

Roberts cited EMC and IBM as FileNET’s two main competitors, curiously leaving Open Text out of the mix. Obviously, Roberts wants to position his company up, and not even or down, but IBM and EMC also boast mature imaging components to their ECM systems.

Regarding the trials of Open Text, Interwoven, Hummingbird, and other vendors with WCM/EDM-rooted applications, it seems to us they may be running into competition from Microsoft, whose SharePoint application has been gaining some serious WCM adoption. Promoted as a departmental solution, we have heard of some very large-scale SharePoint installations, including one of 6,500 seats at the South Carolina Department of Transportation [see DIR 5/20/05].

We imagine that competing against Microsoft for ECM vendors is similar to document scanner vendors competing against HP. Both HP and Microsoft have very broad channels that extend well outside the traditional imaging and ECM space. Thus, even though the vendors might not have the best products, they have the first crack at many resellers. These resellers may eventually upgrade, but initially at least, they are going to sell a lot of HP and Microsoft hardware and software.

Fortunately, imaging software vendors, so far, have not met with this sort of mainstream competition. Technological barriers to entry in the areas of OCR, image compression, and viewing have served to keep anything above desktop/low-end imaging applications fairly niche. Adobe appears to be taking a crack at the document imaging world, but even its PDF efforts are primarily focused on electronically generated files. IBM, of course, is a mainstream vendor, but its imaging technology is hardly aimed at the masses.

The bottom line is that imaging, which was slammed for being a niche technology several years ago when the Web-driven tech boom was erupting, now appears to be succeeding ahead of other ECM technologies for that very reason. That and the whole compliance/records management/failure of the paperless office thing we talked about earlier.

So, now that we’ve concluded that imaging is currently on the vanguard of ECM adoption, what other document-driven applications can you look for to pull through software sales? I’ll let FileNET’s Roberts handle that one. I couldn’t have phrased it any more elegantly than he did during the recent call. “E-mail is becoming a content management problem and not a storage problem.”

For more information: http://www.filenet.com