A World without FileNet
August 10, 2006 12:06PM
Yes, its true little blue (FileNet) is turning into big blue (IBM). In the deal made public today (actually about 2 hours ago)IBM software division plans to plunk down $1.6 billion in cash for FileNet. Pending approval of the deal by FileNet shareholders, FileNet will be gone, and from here on in invisible to us in the document management space. Naturally shareholders will most likely approve the deal even though the paying price $35 is only 35 cents more than Filenet's closing price yesterday of $35.65. Hmmm, I wonder what the significance of 35 is?
In a way its kind of sad to watch them get sucked into the IBM abyss like that, after all they are the ones that started this whole genre of information management. Its even sadder to think that they haven't done anything since, except try to reinvent themselves in a new product category every time a lower priced competitor cropped up. Thus it is that they went from the document imaging business (which they still do, and which keeps more than one light burning at the factory) into the enterprise content management market, which I have to confess I don't understand. You see FileNet started out in life at $44,000 per seat, and they have been pissed ever since at anyone that came along and lowered that price point. Since as a culture they are not joiners, they tried to open up new country clubs where they could be the only member. Hence enterprise content management, and while they are not the only members, at least the riff raff is kept out.
Roughly translated I think Enterprise Content Management means managing information objects that don't fit neatly into a database like characters do, and that have to be shared with lots of people using current web technologies, and that this information needs to be managed according to the rules and requirements and protective measures that people need both individually, collaboratively, and corporatively. There, now that's a marketplace anyone can understand. I can't wait for Ricoh Jerry to explain that hanging around the water cooler. A better description might be Information Management, but that's already taken.
I'm not sure though what IBM thinks they are buying here. Over the past few years FileNet has gone from being a software/hardware company to being a consulting firm with a software sideline. Merely 30+% of FileNet's revenues come from software license sales, the rest is a composite of maintenance and professional service fees. I'm not making fun of the code base, its powerful and high quality to be sure, but from the user point of view you need to spend at least 70% more just to get it to work. Never mind, I just figured out why IBM is buying them.
What does this mean to the rest of the industry? Well its kind of interesting. FileNet is, and has always been referred to as an industry leader. Which they clearly are. But if you apply their revenue model to the entire industry you find that they represent less than 40% of the overall market value of solutions sold by the resellers and integrators that sell everything from AnyDoc to Laserfiche.
Bear with me here. So FileNet gets $422 million end user dollars this year for solutions, at 35% (there's that number again) of revenues as software licenses that means they sold $147m worth of software, and it took $275 million in professional services to get it to work. Take the range of companies from AnyDoc to Laserfiche (and everything in between) that sell largely through resellers, the pure software revenues of those companies, which is roughly $600 million of much lower priced software and apply roughly the same formula of services to software and you come up with a $1.8 billion end user dollar market. Its a comparison we've done before, the bottomline of which reads that the end-user market value of sales through resellers and integrators is bigger than the end-user dollar revenues (combined) of companies like Big Documentum, Stellent, Mobius, OpenText and FileNet that mainly sell direct. Furthermore that spread is growing as more departments of large corporations find they can buy solutions at a better price than the "enterprise guys" are offering.
As the SMB market kicks in the enterprise companies will find themselves working in much thinner air. That's ok though, because IBM can run at full speed in that air, its just a question of whether OpenText and the others can.
So who gets hurt by this aquisition. Well those of us on the riff raff side say, thanks FileNet we've been weaned and we can grow like hell on wheels without you. Those who used FileNet as their model and who are working in the thin air of the enterprise market had better find some breathing apparatus because being sandwiched in the top of the market pyramid between Oracle, IBM and EMC will suck the air right out of your lungs.
Raimund M. Wasner
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