Autonomy Takeover: Implications For The ECM/DAM Market

As was widely reported yesterday, HP simultaneously exited the PC hardware market and made a bid to purchase ECM vendor, Autonomy. Why are HP taking this step and what does it mean for DAM and the wider ECM market?

Setting aside personal factors involving HP’s CEO, Leo Apotheker and his enterprise software background with SAP, the principal reason for the acquisition is almost certainly the high gross margins in the software business as compared with the declining hardware and PC market.

Much of the demand for enterprise software relates to information management tools that assist users to take control of the exponentially increasing volume of content they both produce and consume: this is the rationale for the rapid increase in demand for DAM, ECM and many other content technologies. While feasible for HP to develop their own software or integrate multiple smaller vendors, the time required to achieve this makes an organic option unappealing (especially with demanding shareholders to appease).

With a very low distribution cost and an opportunity to consolidate resources, mass market Cloud and Software as a Service opportunities represent a major opportunity for HP and one that most major vendors are eyeing with interest.

In my view, the key points to note for the ECM/DAM industry are:

• Most major enterprise software vendors like Microsoft, Adobe, Oracle and now HP have representation in the ECM market either developed themselves or via acquisitions.
• Other big technology vendors like Apple, Google and Amazon either have developed Cloud platforms already or plan to. Such platforms can provide many of the building blocks of DAM like file storage, data persistence (databases), bandwidth and hosted applications.
• The battle for the major vendors will be to own the platform upon which an ecosystem of component developers are encouraged to solve task-specific problems of the type addressed by DAM/ECM vendors now.
• In the same way that few companies build their own RDBMS engine any more, standards like CMIS in combination with major vendor platforms will make it harder for smaller vendors to justify ongoing investment into dedicated custom systems. There will be many ‘tide fighters’ but few will survive and those that do will be forced to change the nature of their business.
• Major vendors may face competition from open source platforms who use a freemium marketing strategy and community ‘crowdsourcing’ development tactics but these too will be forced to consolidate. Merely being open source and not charging a license fee will not be enough of a differentiator to ensure survival, let alone growth.
• Buyers will congregate around the aforementioned major vendor platforms and independent vendors will be required to integrate with them to win sales. Many will later decide that the cost of maintaining their own application infrastructure cannot be justified as nimbler competitors who have no legacy code can compete on price and offer the same features more quickly.

The scenario with ECM and DAM is starting to play out very much like other industries: such as the automobile sector in the early-mid twentieth century or personal/home computers in the 1980s.

As with these markets, in the early days there were many players operating from garages, bedrooms and other inauspicious locations all of whom were attracted by initially high margins and the prospect of becoming one of the market leaders. After a number of years, the numbers were whittled down either through a form of commercial natural selection or larger players getting in on the act and using their financial muscle to buy up those that were worth owning. Ultimately, the number of participants reduced to a handful and those who lost out exited the market altogether or re-grouped as supporting businesses behind one of the more established brands. In my view, this template will be repeated in the ECM and DAM market from 2012 onwards.

Arguably, Autonomy were already a sizeable player as a FTSE-350 listed business and the UK’s second largest tech company. By the side of HP, however, they are a relatively small vendor with some niche products. That their board have unanimously accepted HP’s offer indicates that they see a significant opportunity for their business but also the threat (if they had failed to take HP’s shilling) that another competitor would have stepped up instead. This would have left Autonomy to contend with the same series of potential consequences of market consolidation I have just described and that (plus the hefty payout shareholders will receive) explains their eager acceptance of this deal.

For those vendors who remain independent, the questions are: who will be next and is their own businesses  robust enough to compete in a period of market transformation?

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