EMC Swings Into Software Big Leagues

EMC Corp. (NYSE: EMC) took a giant step closer to achieving two of its professed software goals today, as it announced that it will acquire content management software vendor Documentum Inc. (see EMC Cops Documentum).

For starters, the planned $1.7 billion stock swap for Documentum fits well with EMCs overall bid to rapidly expand its software presence, as it attempts to mitigate the continuing commoditization of storage hardware. The acquisition, which will be EMC’s eleventh acquisition of a software company in about three years, should push the company’s software sales very close to its 30-percent-of-revenue target by the end of 2004, according to Mark Lewis, EMC’s executive VP of software operations.

Even without taking into account the possibility for both internal and external expansion of its software portfolio, Lewis says that after integrating Documentum and Legato Systems Inc. (Nasdaq: LGTO), which the company expects to have acquired by Monday, EMC’s software sales will account for just over 28 percent of total revenues.

“We are very close,” he says. “We still have our sights on 30 percent.”

Lewis adds that over the past 12 months, EMC, Legato, and Documentum brought in about $2.2 billion in combined software revenues. “If you go through the list of software companies with more than $2.2 billion in [annual] revenues, that puts us in a very small crowd,” he says. Once EMC completes the two acquisitions, Lewis says, it will be one of the 10 largest software companies in the world.Turning itself into a software Leviathan isn’t the only reason EMC has decided to swallow Documentum. The addition of Documentum’s Enterprise Content Management (ECM) platform, which enables companies to manage the entire lifecycle of all types of content, including documents, graphics, and Web pages, will also bring EMC closer to offering true information lifecycle management (ILM) (see Documentum Does Centera).

While everyone in the storage industry seems to be racing to offer ILM -- the ability to automatically move data from one type of storage to another as its value and importance to the company shifts over time -- so far, no one has managed to get hold of all the pieces needed to put the whole puzzle together (see ILM Remains Illusory). For a complete information lifecycle management offering, a company needs a combination of a large range of different products, including storage resource management (SRM), backup and archival software, policy managers, and document management.

According to Punk Ziegel & Co. analyst Steve Berg, the Documentum acquisition will probably bring EMC closer than anyone to actually getting the whole enchilada. “EMC doesn’t have all the pieces yet,” he says. “But it’s probably closest to having all the pieces.”

EMC has already added more SRM capabilities to its mix with its acquisitions of Astrum Software and Prisa Networks, Berg points out, and with Legato, the company will be obtaining a broad range of backup and archival software products. “Certainly, the tough part of ILM is assigning value to your information,” he says. “And that’s what Documentum does.”

EMC’s Lewis insists that the company is very close to achieving its ILM goal. However, he says, this doesn’t mean that the company won’t be making any further acquisitions in the software space. “We feel that we’re in very good shape,” he says. “But the market is dynamic, so I won’t say we’ll close the door.”While most industry observers seem to agree that the Documentum acquisition will both expand EMC’s software hold and move it closer to ILM light at the end of the tunnel, some caution that the deal could be bad news for the software vendor’s 1,100 employees and its 2,600 customers.

“The real risk is how Documentum’s customers will perceive the acquisition,” says Data Mobility Group senior analyst John Webster, pointing out that customers could worry that EMC will abandon the openness of the approach Documentum has had until now, and tie the software more closely to hardware products like Centera. “They’ll be wary until they really understand where EMC is going with this.”

Lewis, however, insists that, as it did with Legato, EMC is planning to maintain Documentum as a separate software division and remain dedicated to its openness. Lewis also insists that there is virtually no overlap between Documentum’s software and the products EMC already has, or is in the process of buying from Legato, so there will be a minimum layoffs of Documentum employees.

One of Documentum’s customers, Rogers Medical Intelligence Solutions, at least, is not worried about the merger. Of course, the $3 billion medical analysis company is also already an EMC Centera customer as well.

"This is a marriage made in heaven," says Robert Terdeman, VP and chief information architect at Rogers Medical. He says that the combination of a 5-Tbyte Centera box with Documentum’s ECM software is like a car -- all you have to do is turn the key, and it goes. “I have zero staff allocated to managing EMC and Documentum,” he says. “It’s the ideal solution.”But Wall Street did not seem too happy with EMC's decision. In trading today, the storage giant saw its stock price tumble 7.7 percent, to $13.34 per share. Documentum, meanwhile, saw its share price jump nearly 17 percent today, closing at a whopping $28.54 per share.

— Eugénie Larson, Senior Editor, Byte and Switch