Are You Surprised By OpenText?

There is a great post on CMSWire that summarizes Open Text’s (OTEX) approach to integrating RedDot and Vignette. I especially liked Jon Marks descriptions of the various paths they may take. We weighed in on this topic after the acquisition but as I read over the recent announcements  I see OT’s  integration strategy is simple – do nothing.  I wonder – does this surprise anybody? The strategy makes complete sense when you consider the core reasons for acquistions and how they drive the roadmap.

Obviously the end goal of most acquisitions is to increase market share and profitability. We are all in it for the money.  Accomplishing this goal with acquisitions is generally a mix of strategies but every transaction and to an extend every buyer’s preference is weighted toward one. I’ll preface this  further by pointing out that I have absolutely no insider knowledge or information to my company’s approach. It’s not my job and I assure you I am not on M&A’s speed dial.  I am simply commenting on  trends I’ve observed over the years.

As I see it there are three primary motivators for acquisitions in the content management space these days. 

Checking Boxes

The market ultimately controls and defines the feature set. A large vendor has influence but at the end of the day there is a macro view of the features that have to be in the catalog to claim you play in a space. It’s like positions on a baseball field. If you don’t have a left fielder you have a huge hole in your defense.  Tech companies always have the option of writing their own modules to fill gaps but in today’s market who has time for that?  After the acquisitions and time permitting though these products tend to get integrated or rewriten in the core platform.

As players in tangential market segments try to move into a broader category you will often see a collection of acquisitions that might not make tremendously good sense from a technical perspective but they let the marketing teams rush out and update the bubble charts. Autonomy/Interwoven for example.  If you look at OT’s acquisitions the Captaris buy certainly falls into this category. Not a bad technical move but certainly motivated more by box checking than anything else.

Strategic Technology Acquisition

These are long term plays.  When you are already in a superior market position you have to focus some amount of attention on where the market might go as opposed to making up deficits that don’t necessarily hurt you in the market. When a juggernaut like EMC decided it wanted to do content management it dabbled with Legato but then went all in with the acquisition of Documentum. 

These are fundamental shifts in direction in advance of future movements in the market as opposed to reactionary buys in response to immediate needs.  It looks like box checking in some sense but the motivation is long term rather than short term. These buys will seldom create overlap but when they do there is a directed effort to consolidate along a single technical and market trajectory. 

Buying Seats

Open Text’s strategy appears firmly rooted in this category. At least where WCM is concerned.  Some acquisitions are about nothing but market share. They are driven by how many customers can be added to the list in a single transaction. The behavior is easy to spot as there is not concern for overlap at all. After the deal closes there is no drive from the top to consolidate the technical underpinnings of the offerings either. It is a business transaction pure and simple. As long as the maintenance stream from a given product line is enough to maintain the staff, you leave it alone and cash the checks. (CA anyone?)

This is not really a criticism of the approach from a business point of view. Look at their top line growth. Unfortunately for the user community it is not good for the long term. Ask PC-Docs / Hummingbird users about their upgrade paths to LiveLink.  You could make the argument that systems that old need replacing anyway – I don’t disagree – but it does affect the buyer of new systems. Without a commitment and a common technical vision – how do you know you are not buying into a branch that is about to be trimmed? I doubt the sales guy will tell you.

Overlap occurs with many acquisitions and not integrating make sense when there are clear market diferences that the different product sets can play to. (e.g. Enterprise vs. SMB) Open Text’s problem with RedDot and Vignette is far more pronounced. Sure Vignette has a portal and some other goodies but the obvious unreconciled duplication of capabilities with no direction from on high as to how to differentiate them is bad news. Mostly to the buyer. Promises for continued R&D are only good until the next quarter’s results come out and if net license revenue isn’t up then the overlap is the first thing to go.

I still hold that Open Text is hoping to get acquired by somebody (namely SAP) and I believe they feel that market share and deployed seat count are the metrics that will make them most attactive. If that is the focus though, I wonder what the motivation of the buyer will be with so much overlap and no clear plan to deal with it.