OneDrive is Coming For You

Every so often, an up and coming software company will announce a new partnership with Microsoft adorned with a great deal of optimism. I cringe every time.

These are not agreements made with the best interests of everyone in mind. Someone is eventually going to lose, and it will not be Microsoft. To be fair many of these sorts of deals fall into the “necessary evil” category but at the end of the day it is important to remember prostitution is not a partnership.

Dropbox first announced their Microsoft partnership in 2014 and continued to evolve it with new developments as recently as last June.  At the time I warned that this would not end well for dropbox as I believed that eventually Microsoft would leverage their position to flip users to OneDrive when they felt like it. Word of Pie said I was wrong but this week we have a new offer from Redmond to buy out the customer contracts of OneDrive for Business competitors Dropbox, Box and Google Drive. Perhaps there was something to be concerned about after all.

With the migration of the planet to O365 and the addition of key OneDrive features like external file sharing, the hassle of having two vendors managing the same content in the cloud starts to make the integration feel unnecessary. In some ways the EFSS sales teams even preemptively solved an adoption problem for O365. MSFT let the cloud content vendors (their users really) fight the off premise file share battle with the internal IT organizations. Now that businesses are emotionally ready for their files to be solely managed (edited and stored) by a third party in the cloud they are more than happy to oblige. The front end will always win – eventually.

Since Dropbox has quietly filed for an IPO it is clear that they see the landscape changing. I am always skeptical at how effective these sorts of swap out programs are in the long run though. Content is historically much harder to move once it is in a particular cloud. Nevertheless the threat of losing customers to the bigger partner changes the dynamics. Integrations can start to work against you now.

How does this impact Box? This is a company that famously bought snarky billboards to irritate Microsoft (which I admire) but then it accepted the necessity to partner with editor integrations. They now face the same risks as Dropbox but with one key advantage. Last year Box pivoted the core of the relationship toward Azure and AI rather O365.

This not only helps address longstanding data residency and ownership issues for Box but puts them in a place that where Microsoft cares if they are successful. I’ve long believed product infighting at MSFT is only slightly less bloody than a Game of Thrones episode and when it comes to prioritization, Azure clearly wins over OneDrive. Driving Azure and competing with Amazon on the PaaS front is exponentially more important than incrementally expanding OneDrive’s footprint. Not to suggest that they won’t happily flip a Box contract, but Box is clearly a secondary target because it can support a different objective. Azure growth.

This is not a passive announcement. You should anticipate a push by Microsoft sales during O365 migrations to take the next step and consolidate cloud document stores as well. I do not think this will be an easy sale. As I mentioned the inertia of content will make it difficult to dislodge from existing providers for a number of reasons. The promise of “seamless” integration of OneDrive will be a compelling argument though to contract holders so make sure that the user’s experience across your business device landscape is carefully evaluated and protected in the transition.

OpenText Acquired Another Legacy ECM Platform

Today’s announcement that OpenText bought Documentum (a.k.a. Dell) EMC – ECD) was really not a surprise.  It was pretty much a prewritten story with just the details missing.  The question is does it really matter?  It is not a huge win for Documentum, as would have been the case with private equity money allowing independence.  So let’s look at the deal.

OpenText’s Win         

OpenText took out a competitor.  Had Documentum gone with private equity, it would have continued as a competitor to OpenText.  If we look at the HPE deal with Micro Focus, as many as four private equity firms were interested in the old Autonomy assets.  These private equity companies could have easily been interested in EMC – ECD too.

With private equity, competition would have come to management.  We now know from the announcement call that ECD had revenues of $600m of which $300m was maintenance.  That could have been some strong competition.  This merger is going to make for some interesting calls as these two have competed fiercely for over 20 years.

OpenText’s Loss

Documentum will need to be maintained as a platform.  Both OpenText and Documentum are platforms that require customization before customers can use them.  Those numbers have been often described as 6:1 in services dollars to every software license dollar.  The new ECM market includes vendors like Hyland OnBase and M-Files that are low-code options with services ratios closer to 2:1.  When existing Documentum customers soon begin to look at their options, they will have a choice to redeploy a Documentum solution on OpenText or look at other solutions.  Cloud only solutions, like Box, and low-code solutions,like Hyland Onbase and M-Files, will be front and center.  It then becomes a question of total cost of ownership.

Other Vendors’ Win

I think the big opportunity is for other vendors, especially the new ones.  In most new deal opportunties, smaller vendors are nothing but column fodder.  The prospect has a couple of vendors chosen and they need more than two for a good selection set.  Those opportunities have usually been battles between IBM, EMC, and OpenText.  In cases where one vendor was truly disliked, it opened the door to a third player.

With EMC and OpenText being one and the same, it opens up all of these deals to other vendors.  The usual suspects become IBM and OpenText, with a third vendor to be determined.  This also opens these opportunities to new ways of thinking.  IBM and OpenText are legacy platforms.  This opens the door to Cloud, OpenSource, Low Code and Content Enabled Solutions.

Who is the Leader?

Too much has changed in ECM.  Only hours before the announcement, I speculated on Documentum and also recapped the investments in ECM.  In my post, the opening section recaps how this was not the only deal in the last year.

OpenText did nothing but lock down legacy content management.  FileNet is all but gone, leaving IBM with Content Manager and a relationship with Box.  The Meanwhile:

  • Cloud solutions have always been on the edge of ECM. Box’s relationships with IBM move it closer to a real ECM message.
  • Low code ECM solutions have emerged that are faster to deploy, like M-Files and Hyland OnBase, which are already competing with Documentum and OpenText.  These solutions don’t require months or years of coding to deploy, they take a few weeks of configuration.
  • Overseas Niche Players are also starting to move onto the global stage. Nuxeo is following in M-File’s footsteps into the U.S. and other global markets.
  • Content Enabled Solutions have all but been missed by ECM players. Many of these content enabling back office solution vendors have started to cross horizontal business units.  Some of these are major vendors, like SAP with Ariba and Success Factors.

One thing is certain.  The leader of ECM will not be in any report in the coming months.  Leaders will be emerging by what actions they are taking in the coming year.

A Busy Year for ECM Investments

This was posted less than one hour before Open Text announced it would buy Documentum (a.k.a. EMC-ECD).  My assessment of the acquisition is here.

You have to look closely but there’s really a lot going on in the financial world around Enterprise Content Management.  There is more out there than what will happen with Documentum.  With a deal in the works now on HPE software, an EMC – ECD (Enterprise Content Division) deal may be close.

First off, these are my personal opinions and not those of Big Men On Content (BMOC) as a whole, any other BMOC blogger, nor our affiliated companies past or present.  This opinion has been formulated based on my years in the industry along with what I’ve seen or heard in the news.

ECM Mini-Market Recap

Last week, HPE sold its remaining software assets, Autonomy and Interwoven, to British software firm Micro Focus.  OpenText also bought HP Team Site assets back in April, which was once part of Interwoven.

In the same deal, it had earlier been reported that Thoma Bravo was interested in HPE’s software assets.   Thoma Bravo is an investor in Hyland, the makers of OnBase.  Earlier this year, it was reported that Thoma Bravo was looking at Lexmark, with its Perficient and Kofax software lines.

In April, Lexmark was acquired by Apex Technology. As of now, Lexmark continues to focus on both software and printer markets.

Last summer iManage became independent again as it spun out of HP.  They are now focusing on Contract Life Cycle Management solutions.

One can’t forget new ECM vendors either.  Nuxeo just got another $20M from VC’s bringing their total to $30M this summer.  Meanwhile, M-Files got $36M from VC’s back in March.

The last year has not been quite.

Which brings me to EMC – ECD

Ever since Deal announced it was acquiring EMC, the rumors were that ECD would be sold.  The deal closed last week with ECD becoming part of Dell.  Still the speculation lingers on a potential sale.  With Micro Focus purchase of HPE, a buyer may emerge for Documentum.

Technology Services Group gave their thoughts on the near future of DocumentumJohn Newton, co-founder of both Documentum and Alfresco, also gave his thoughts.  So I thought I’d share my thoughts on a possible candidate.  Again these are my opinions.

Private Equity – My best bet is on private equity.  Looking at the news around HPE, several private equity firms are mentioned: Thoma Bravo, Vista Equity Partners Management, Carlyle Group and TPG Capital.  Any of these would now be potential investors in Documentum.

Still, I didn’t see why Thoma Bravo would invest in Lexmark.  I questioned Lexmark’s overlap with Hyland OnBase.  With ECD there’s even more overlap with Documentum, ApplicationXtender, and Captiva.  An investment by Thoma Bravo without combining the two might work.

With private equity the question then becomes, who would be the management team.

Software Vendors – I really see this as the long shot.  The usual names that come up don’t make sense.  Oracle has moved on already.  Microsoft’s focus is on Azure verses Amazon Cloud Services.  SAP has Ariba and SuccessFactors which give them out of the box content enabled business solutions.  Open Text and Computer Associates could acquire ECD for their revenue stream, but that would be a large acquisition for just a revenue stream.

I have some other thoughts:

Adobe could use this to build on it support of documents and PDF.  They have a web content management solution but don’t have a document management solution.  Adobe has tried to build an ECM solution of their own.  An acquisition would give them that.

Box could easily get enterprise credibility and a revenue stream from ECD.  They have a great cloud sharing solution and beat financial expectations this past quarter.  ECD would bring them to profitability and give them an upsell customer base.  Box’s partnership with IBM is giving them enterprise credibility.  Owning Documentum would allow them to have both sides of the story.

Global Systems Integrator – In a completely different direction on possible candidate.  Global Systems Integrators, like TCS or Wipro, could easily use this to expand into the software space.  Some even have the cash on hand needed.  The solution development required to deploy Documentum could continue to drive traditional services revenue for GSI.   So I wouldn’t be surprised.

It’s all speculation and guesses.

At the end of the day it’s all speculation and guesses.  While I can imagine Documentum spinning out of Dell/EMC with Dave DeWalt coaxed out of retirement to re-energize the team.  (Jobs did come back to Apple.)  I doubt that’s going to happen.  My thoughts are leaning towards either Adobe or Box.  I think the ECD product lines would find the fit it’s been looking for since 2003.

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