The DAM Software Market’s Customer Acquisition Problem

This feature article was contributed by Ralph Windsor, DAM News Editor and Project Director of DAM Consultants, Daydream.

Recently, there has been what, at least, superficially appears to be a trend for consolidation in the DAM software market driven by the acquisition of a number of DAM vendors.  In this article, I want to pick apart what I see as the major reason behind this phenomenon and examine the implications for other market participants, including both end-users of DAMs and other firms who remain independent.

There are broadly three classifications of acquirers (those doing the buying) which can be summarised as follows:

  • Private Equity, Venture Capital and Search Funds
  • Suite vendors
  • Funded vendors

Let’s dig a bit deeper into each of them:

Private Equity, Venture Capital and Search Funds

This group usually have very limited prior knowledge of DAM and usually only became aware of the existence of the field recently – but have reached the conclusion that the market has the potential to generate them a return.  Some recent examples of this kind of tie-up are the acquisition of Fotoware and also WoodWing, by VC investors in both cases.  There are similar deals involving both Private Equity and Search Funds also (with the latter being far less well-publicised).

Suite Vendors

Suite vendors are those who offer a package of related systems, usually with a particular focus on a close cousin of DAM like WCM (Web Content Management).  They tend to employ somewhat nebulous terms like ‘Customer Experience Management’ to describe their offer (possibly because they aren’t totally sure what it is themselves yet).   Many have deemed that they need a DAM product, having decided that building one in-house would take far too long.  A recent well-known example would be Acquia’s takeover of Widen last year.  As was pointed out on DAM News at the time, Acquia had a DAM, but it wasn’t exactly setting the world alight and they decided that buying up someone else was the better choice.  Widen were previously giving out signals that they were running out of options to expand their business under their own steam, so there was commercial logic for this deal, even if it appeared incongruous from a product (or end user) perspective.

Funded vendors

The final group of actors to take to the stage are other vendors (usually with financial backing from a VC etc.) who want to buy up the competition and have spare cash in order to do so.  The object of their interest will typically service a group of customers within a particular niche (e.g. a geographical region) which would be too difficult or slow for the suitor to break into otherwise.  In this case, the technology is of limited interest, it’s the customers that the acquirer wants.

Right now, of the three, there appear to be more of the last group who are in the market to acquire DAM vendors (at least of the deals that are publicly announced).  In the current era, the Bynder acquisition of WebDAM in 2018 was probably the start of this trend, but it is not at all without historical precedent in the DAM sector (a point I will return to later).  A couple of other current examples (as I write this in 2022) include Photoshelter’s acquisition of ThirdLight and Fotoware’s purchase of Picturepark.

To understand the motivation behind these kinds of transactions, it instructive to carefully examine the text of the press releases that announce them.  See below for some examples (emphasis added by myself):

By acquiring Third Light, PhotoShelter adds a talented UK-based team, picks up their flagship DAM application, Chorus – featuring robust collaboration and work-in-progress tools for creatives, and adds more than 300 global customers. The merger expands PhotoShelter’s DAM capabilities and international market share as the company meets growing global demand for streamlining media cloud storage and creative workflows.” [Read More]

This is an important acquisition for FotoWare and signals yet another great stride forward in the company’s ambitious expansion strategy,” says Jostein Vik, Partner at Viking Venture and Chairman of the Board at FotoWare. “It marks the first acquisition of another vendor in the Digital Asset Management space and increases market share for the FotoWare group whilst adding technical excellence and further strengthening FotoWare’s position in the DACH region”  [Read More]

In both cases, it’s quite clear that both suitors prioritise the acquisition of customers.  It’s only the CEOs/Managing Directors of the firms who are being bought up who want to talk very much about their DAM technology:

We’re incredibly proud of the technology and trust we’ve built at Third Light with many of the world’s most discerning organizations.” [Read More]

Picturepark has invested a lot over the last years into our new versatile API-first Content Platform with the goal to meet customer’s future needs of powerful content management solutions that outlast and outperform.” [Read More]

Notice that the above don’t say much about their suitor’s plans for their technology; it’s mainly about what they have done in the past.  Those buying them have even less to say on that same subject.  Where they do, it is couched in vague terms with words like ‘vision’ and ‘mission’ etc.

The implication of this is clear.  The nature of the deals in question is essentially a competitor deletion exercise.  The suitor needs to remove the competition by paying them off because they can’t win customers at the scale and speed they need to.  The acquired party wants to get out because they too are now finding that getting more customers is becoming progressively harder and they don’t have the financial clout to do the same as their wealthier peers.  Everyone wants more customers, no one can bring them in fast enough, so deals are done to buy and sell them in order to get everyone out of different sides of the same hole.

Why is this happening?  There are a few key reasons, but probably the biggest is the fact DAM is mature market.  Despite all the nonsense you may read in all of those generic industry reports about the high rates of growth in DAM; a fact that most experienced DAM salespeople will usually attest to (in private, if not always in public) is that very few DAM customers are now first time buyers.  The individuals making the purchasing decisions may not necessarily have had to buy a DAM before themselves, but their predecessors almost certainly have done (and probably more than once).

The Enterprise end of the DAM software industry is now a replacement rather than a growth market and has been for some time.  In stark terms, this means that if one vendor wins a new client, a competitor loses one.  This is the fundamental reason why the Enterprise DAM software market isn’t growing.

Buying DAM Customers is a Mug’s Game – Especially for the Customers

So how will all this activity end and what are the implications?  Analysis of these questions yields a few conclusions which, as I will describe, are somewhat disturbing, depending on the nature of the transactions themselves.

Firstly, to make it absolutely clear, I have no issues with Venture Capital, Private Equity, Search Funds or any other investor taking equity positions in DAM vendors.  I have dealt with many of these parties professionally and in the main, they are very intelligent and shrewd operators.  The liquidity they provide is needed to take the DAM market to places it would not otherwise be able to get to via ‘sweat equity’ alone.  My issue is how the vendor management utilise the precious funds they have been allocated to achieve a long-term sustainable competitive advantage.

Regarding suite vendor acquisitions of DAM specialists (what you might call ‘jigsaw piece’ deals) I am somewhat less of a fan of these, but they are not universally bad.   They can be made to work, but only if the management of the acquiring vendor are properly advised and understand exactly what they are getting themselves into.  My expectation is that suites with DAMs will get sold, but rather less than the owners hope and they may still be forced to leave their DAMs as semi-detached entities which are never fully integrated.  With suite vendor acquisitions of pure-play DAM firms, there is at least the potential that something more innovative may emerge which does have benefits for the end-users.

The final scenario described (DAM vendors buying up other platforms to bolster their customer numbers) is arguably the worst for everyone (the exception of course being the owners of the firms who get bought up).   The motivation behind this manoeuvre seems to be primarily about corporate window dressing.  So where previously the suitor might have had, for example, 500 customers, if they buy up someone else who has 200 customers in another region, they can say they have 700 ‘global customers’.  This sleight of hand comes with a caveat, however and the risk is that the final cost could far exceed the cost of the acquisition itself quite substantially.  Why so?  To understand this, it is necessary to understand the practicalities of what happens after the smiles and handshakes have concluded and the difficult work of integrating the acquisition starts.

In an ideal world, the unique features of the platform developed by the vendor being bought up could be quickly assimilated into the suitor’s main product and all the customers effortlessly migrated across to create a kind of ‘mega platform’.  In the real world, however, anyone with even rudimentary experience of DAM system development and implementation knows that DAM migrations are messy jobs.  It is true that they are now far easier than they used to be, further, a level of accumulated knowledge about how to deal with the task exists across the industry.  But, nonetheless, they are still expensive in terms of the time and effort involved.  A rough comparison is moving house: the task is certainly achievable, but not one you want to go through on a regular basis and also not without a number of quite large risks.

Using my previous example, moving 200 ‘new’ customers over to a single platform implies 200 migration projects that have suddenly been created at the stroke of a pen.  Each of these needs to be managed in a way that at least appears to be unique for each customer, lest they feel unloved and that the new owners don’t value their business.  If there are more than a few problematic migrations, these will swamp the development and support team, taking their focus off building new features and enhancements.

Changing the focus to the customers themselves (i.e. the DAM end users); there are going to be a sizeable number who never wanted the suitor’s DAM to start with – otherwise they would have just bought it originally.  Many long-term DAM platform users (the ones who make the acquired company more valuable) will not want to move to something else that has been foisted upon them for someone else’s convenience.  They may take the view that rather than an enforced migration to a platform they didn’t select, a preferable option is to simply go out and shop for another solution elsewhere that is more to their liking.

Long-term customers will usually have shorter contractual notice periods and maybe other kinds of special terms and arrangements which the original vendor consented to in order to secure their patronage years ago.  All of these complicate en-masse DAM vendor customer migrations, contractually as well as technically.

If the acquiring vendor has paid a typical multiplier for the target business (e.g. 3 x annual revenue) the acquisition could work out very expensive if many customers are lost along the way.  Each who leaves increases the acquisition cost of those who remain.  Every further loss begins to make the deal harder to justify to the investor who put up the funds for it.

Given the risks I have outlined, a conclusion that could be reached by management is that the simplest option is to simply do nothing with both the platform they have just bought and allow it to run as quasi-independent entity.  This has hitherto been the strategy of firms like OpenText and Northplains in the past (although the former have handled it more successfully than the later, it should be noted).

Analysis of Bynder’s behaviour suggests the same approach.  Shortly after their purchase of WebDAM in 2018, I was dealing with a salesperson acting for a WebDAM reseller during a client DAM procurement exercise.  He informed me that the then CEO of Bynder (Chris Hall) had personally given him an assurance that WebDAM would remain an independent platform for ‘at least three years’.  I probably won’t ever know if that was a genuine promise or not, but as it turned out, the WebDAM product has outlasted Bynder’s former CEO and they still offer it as a separate platform, albeit without its own website these days.

I have no doubt that Bynder woud be at great pains to point out the many differences between their own DAM and WebDAM, but I would be very surprised if there were not still literally hundreds of WebDAM customers still using a product that is remarkably similar to the one they signed up to prior to the Bynder acquisition.  What is the likelihood that the same will not occur with these more recent tie-ups?

If you are a customer of one of the acquired DAMs, the situation is quite unclear.  While you might not necessarily be migrated to another platform you didn’t choose to start with, the question of what happens to the one you did select is much harder to define.  It seems unlikely that the acquiring firm will prioritise the development of a platform that is not their own (especially if it has fewer or more niche customers).  It’s hard to see how the acquired platform will not be viewed as much more than a cash cow to be milked rather than invested into.  Cost reduction and de-duplication will be the order of the day in order to help pay for the acquisition, with all the impacts on service delivery which that scenario implies.

I can see the commercial logic for smaller independent DAM vendors to want to sell themselves to their funded peers rather than deal with the hassle of going toe-to-toe with them in new business pitches etc.  They probably stand to benefit the most from this trend.  I can also see how ‘splashing the cash’ can superficially appear to solve customer acquisition issues for the management of funded vendors.  Long-term, however, this is not going to end well for anyone who still remains invested in an acquired DAM platform – whether financially or emotionally.

Software Goes To Where?

Those with some longer-term experience of the DAM market will be aware of what happened to North Plains, who were also a funded vendor and who tried the same kind of tactic of buying up competitors when organic customer acquisition methods were not sufficient to enable them to achieve their revenue objectives.  The final chapter for what was once one of the major brands in Enterprise DAM is somewhat unfortunate.  The strapline of the firm who now owns their customers and software assets, ‘where software goes to live’, is loaded with Freudian irony which I will leave the reader to contemplate at their leisure.

To an extent, the issues I have described in this article do affect enterprise software, in general.  With that said, however, Digital Asset Management solutions appear to be particularly complex to migrate and therefore, the vendors who developed them are correspondingly also more demanding to integrate from a business management perspective.

The outcome is likely to be that there will be an increasing number of platforms that are left to wither on the vine rather than achieving their true potential had they remained independent.  This will act as a further drag upon innovation in the DAM market, which is already very limited.  The reality of what is occurring is not market consolidation and the industry coalescing around a few dominant market leaders, it’s corporate expediency trying to compensate for an inability to differentiate, i.e. give customers a genuine reason to favour one platform over another.

This is yet another example of how structurally inefficient the Enterprise DAM software market is.  All the time the ‘fragmented centralisation’ application delivery model remains the dominant one in Digital Asset Management, these kind of issues will repeat, ad nauseam.

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