A couple of articles on the internet caught the attention of our clients. The first by Alan Pelz-Sharpe at 451 Research – “It’s Time for EMC and Documentum to go their separate ways” and then a follow-up with quotes by Virginia Backatis titled “Will EMC Dump Documentum?”. Rather than focus on will or should, this post will share our thoughts regarding “would” EMC dump Documentum.
Should EMC Dump Documentum?
Alan has some great points in that:
- Documentum isn’t growing – Virginia quotes that Documentum has small growth, as we pointed out in our recap of Documentum Financial results for 2013, it is really just services growth and product sales have actually declined. This is particularly relevant as other software divisions (VMWare) are growing at 30%+ rates.
- Documentum isn’t a big part of EMC – with only accounting for 2.8% of revenue, Documentum/IIG is such a small part of EMC and does not impact overall EMC results.
We agree with Alan’s points that Documentum/IIG is a minor part of EMC. As mentioned here often, we think that IIG needs to continue to remain profitable as, if they aren’t growing, could be seen as a “cash cow” for EMC and will be evaluated based on profitability.
The argument for splitting Documentum/IIG off of EMC relates more to growth as well as product innovation. As we pointed out in our recap of EMC World/Momentum 2013, more of the innovation with Documentum/IIG has been on how to build more solutions/products to upsell their base then it is to expand to new areas.
Would EMC Dump Documentum (Who would buy them?)
Our best thought still remains that the likelihood of EMC splitting off or selling Documentum remain very low. Our points continue to be:
- Tucci bought Documentum – Given that Joe Tucci was at the helm of EMC when Documentum was bought, is still at the helm and vigorously stated in 2012 that Documentum would not be sold off, we see it as highly unlikely that Joe will admit defeat by making a news event about EMC for something that is still profitable but only accounts for 2.8% of revenue. Joe’s quote in 2012 was that ““I think you will see …(with Documentum/IIG) … a return to growth, probably not next year, but it will remain a part of the company.”
- Would Documentum be doing as well without EMC? – While Alan has some great points about how the sales and engineering don’t align, the girth of EMC from a funding and size of the company continue to help Documentum fund their services growth. EMC has great benefits and perks (including stock options) to attract people, would an independent Documentum be as attractive?
- Who would buy Documentum? – There isn’t an obvious suitor out there that would buy Documentum. Software is not the hot commodity it used to be (look at Rick Devenuti’s Alma Mater, Microsoft – how have they done over the last 10 years? Looks similar to Documentum). We proposed SAP back in 2010 but it is hard to see anything materialize on that side given SAP’s OpenText relationship. As Documentum becomes more and more services, another potential purchaser might be a consulting firm. Accenture has a strong relationship with EMC and might be a potential but hasn’t even looked for that type purchase in the past. CSC would have been a good alternative given the amount of Documentum work with FirstDoc, but that relationship has deteriorated since the announcement of D2 and a LifeSciences solution suite from Documentum that competes against CSC.
When were the “Glory Days of Documentum”?
In promoting Documentum at the end of her piece, Virginia states:
Won’t a Turnaround and a Little Growth Be Enough? … EMC IIG’s current President Rick Devenuti, and his team, have done an amazing job of turning the company around. He has taken Documentum’s business strategy back to what it was in its glory days- providing world-class solutions to select vertical markets.
We would argue that the glory days of Documentum were in the 1996 – 2004 timeframe, pre the EMC purchase, when:
- ECM was new to the market
- Most opportunities were “green field” with implementation of ECM for the first time
- Documentum was almost exclusively focused on software, not consulting/services
- Documentum had a robust and innovative partner network that focused on solutions.
As ECM has evolved into more of a commodity, the little growth Documentum is experiencing is selling services and some products to existing customers. As a growing software company in a growing software industry in 2004, Documentum was a good purchase option for EMC.
Whether you’re a follower of “Crossing the Chasm” and see Documentum/ECM as Main Street or “Innovator’s Dilemma”, it is difficult to see Documentum innovating in the ECM space. It is difficult to see a suitor emerging that embraces the value of a “little growth” services company.
While the title is catchy and we agree with Alan’s analysis, we would find it highly unlikely that EMC would split from IIG/Documentum. Our thoughts stem from the combination of:
- a small amount of likely purchasers
- inability to spin off a low-growth company back to independent
- minuscule impact of Documentum Revenue (2.8%) or Net Income on EMC overall numbers
- Joe Tucci being personally responsible for the purchase of Doucmentum by EMC
We see the likelihood of EMC dumping IIG very low. Give us your thoughts below.
Jorge Sapaj says
I partially share your comments, I believe a key point that is not discussed on your article is that EMC probably bought Documentum and another bunch of other software firms including VMWare as drivers to sell more storage and not because Documentum itself was considered a significant revenue stream to EMC. As a prove I can see a local EMC stuff not even caring to sell Documentum alone, without storage deals, and EMC not even hiring sales people for the platform.
However, what I have seen, is a strong focus on services as you pointed on this and previous blogs.
Back at the time EMC made the acquisitions the bet was to bring software that would help to increase demand for storage. Like Documentum as a content manager (remember Media Services, archive services for SAP, etc), VMWare as a VMDK files provider, Legato as a backup file provider, the same for KAzeon/SourceOne, the AppXtender systems, Avamar, etc. If this strategy has really worked for EMC my opinion would be “maybe” or “partially”. Also Documentum provided EMC a more robust product portfolio to present customers. The Documentum brand itself is a very valuable asset for EMC as EMC is a very valuable brand behind Documentum.
Saludos from Chile!
TSG Dave says
Great comment. Agree with your point in regards to initially selling more storage. I had a client story from right after the purchase where the EMC rep (not Documentum) called me up for a life science client. After I explained that we were trying to upgrade their DCM as well as rest of Documentum stack his quote was “I don’t understand anything of what you just said but are they going to buy more this quarter?”. Pretty much sums up a storage (buy more) rather than a solution/service/software sale.