FileNet and CMOD – Will IBM finally sell them and potentially buy Box?

One of our more controversial posts over the last couple of years was back in 2017 “FileNet – Is IBM Planning on Selling it”.  We had some interesting follow-up – particularly on LinkedIn from some folks at IBM that were not to happy with our analysis.  At the time we stated that “we would expect that IBM would sell off FileNet and potentially Content Manager within the next two years”.  With two years coming up in May and the recent news of IBM selling off Notes and buying Red Hat, this post will take a fresh look at the potential sell-off of FileNet, Content Manager along with a potential purchase of Box by IBM.

IBM & FileNet – 2017

Back in 2017, we stated the following:

In talking with a variety of ex-employees and analysts, IBM has treated FileNet as a “cash cow” within the IBM family of products for years very similar to the way Documentum was treated by EMC before Documentum was eventually sold off to OpenText.  As with many legacy ECM tools, while FileNet has a large install base, many FileNet customers last made significant investments prior to the downturn of 2008.  In our own experience over the last three years, anytime TSG sees a FileNet customers looking to migrate, typically the FileNet implementation has had only minor maintenance upkeep in the last 10 years if any at all.  As with any software with a high maintenance stream, there isn’t a good market reason for IBM to introduce significant innovation for a variety of reasons including:

• customers aren’t always asking for change as it can impact stability
• customers forced into a change might begin to review other platforms and disrupt the maintenance revenue

IBM has benefited from FileNet’s large install base as a way to offer consulting services to the base as well as other product up-sell within the IBM ECM Suite (we hear Watson all the time).  As we mentioned here in previously, we are not sure the ECM Suite is that sweet anymore.   As it relates to IBM, even their ECM MegaSuite is just one of multiple offerings for clients.  Multiple sources have confirmed that not all is well within the IBM ECM suite as one insider guessed that revenue for the year was down roughly 25% with significant layoffs, particularly in the sales roles.

The concern of FileNet customers as well as the FileNet employees at IBM can be the focus on items that are not FileNet.  Some concerns include:

• Consulting – Should IBM improve FileNet (or Content Manager) or just sell consulting services to patch any issues or upsell to other products/services.
• Cloud – IBM has been very focused on their cloud offerings. FileNet, and particularly legacy FileNet, isn’t really cloud friendly.
• Box – The relationship with Box is something IBM has been focused on lately. Given Box’s thoughts about pivoting to include ECM, does the partnership take away from the ECM focus of FileNet?
• Watson – you hear it everywhere from IBM as the hot tool and it is the major focus on IBM. How does a legacy ECM system line up with Watson?  With FileNet positioned in the Analytics division of IBM, will it get the focus from IBM required to innovate or is it just a platform that can sell Watson.

In talking about IBM selling off FileNet, one FileNet alumni mentioned that within the FileNet division, there have been rumors of a sale for the last two years.  When approached by outside investors, rumors have it that IBM is not saying “never” but saying “not yet”.

IBM & FileNet – 2019 – Is now the time?

In discussions with other analysts as well as ex-IBMers, many think 2019 will be the year that IBM sells off FileNet and CMOD.  Contributing factors:

• Continued exodus of both sales and support from IBM. We continue to hear and see lots of ex-IBMers that used to be in the ECM space that have left IBM.
• IBM’s sale of Lotus Notes/Domino back in December
• IBM’s purchase of Red Hat in October for $34 billion

Clearly IBM has been moving away from the old to embrace more of the new.  While it was all about Watson back in 2017, cloud is definitely a continued focus and old-school, on-premise systems are not great for honing that focus.

FileNet and CMOD – Who would potential buyers be?

It is worth noting that CMOD has already been slightly sold off to Unicom back in 2016 while it has remained still a product IBM sells and supports. It is hard to predict which company would buy FileNet and CMOD but a couple would be serious contenders.

• OpenText – Just like when they added Documentum, OpenText could leverage other products and would be interested in the Financial Services clients dominated by FileNet and CMOD.
• HCL – After the purchase of Notes/Domino, they might be willing to take another product off IBM’s hands.
• Other Services – It is hard to see one of the other ECM players being able to afford the price IBM will demand. We might expect other services companies to consider the purchase to reach into the install base.

Would IBM buying Box?

As a public company since 2015, Box is somewhat different in the unicorn space.  While they continue to grow, they also continue to lose money in order to build market share.   We would anticipate that one of the larger players would potentially look at Box as a way to buy market share and eventually make profitable by leveraging that market share to sell services and other products similar to Microsoft’s purchase of LinkedIn.  While Box is currently valued at around 3 billion, IBM is one of large players that could do the acquisition and already has the money, deep Box skills and relationship.  It is hard to see other players large players consider Box given the alternatives they already have (Google-Drive, Microsoft-Office365). Another analyst thought maybe Adobe or Salesforce would be interested in Box.

Summary Thoughts

From our discussions with ex-IBMers and current customers, FileNet and CMOD are not getting much investment from IBM.  Given the sale of Lotus Notes as well as the purchase of Red Hat, it is not a huge stretch to say that IBM might be seriously considering both the sale of FileNet and CMOD as well as the purchase of Box.  We will see over the next year if our prediction from 2017 comes true.

Let us know your thoughts below.