IBM Drives “On Demand” Information Strategy with Aquisition of Filenet

August 18, 2006

IBM surprised the industry last week with an announcement of its acquisition of FileNET Corp., a leading content management platform provider. The $1.6 Billion cash deal is scheduled to close by the end of Q4 2006, and will provide a significant boost to IBM’s On-Demand Information Strategy, which seeks to provide customers with industry-specific, high-value solutions that capture and deliver content as part of a business process. This announcement follows less than a year after IBM announced its SOA and BPM Platform strategy, entering into the highly active Business Process Management market.
This combination of IBM and FileNET will create a massive powerhouse within the BPM market. Once the deal closes, FileNET will become part of IBM’s Information Software unit, with the senior management team at FileNET agreeing to help drive the business as it moves forward. Further details about product roadmaps or specifics about employee retention are not available at this time.
Among the goals of this acquisition is IBM’s desire to extend its BPM platform into more industry-specific applications. FileNET and IBM have both been successful with compliance-related applications of their respective BPM solutions, as well as some vertical success. Combining the content-centric side with the integration part of BPM will create more robust opportunities for industry-specific and compliance-based solutions that will benefit both IBM and FileNET customers.
IBM’s reason for pursuing the acquisition of FileNET is to capture the tremendous growth opportunities in the content-centric BPM market, of which FileNET is a clear leader. With more than 4,300 customers and a solid solution that has been around for twenty years, IBM is buying into a significant growth driver. The fit of the two companies will remain to be seen, but both FileNET and IBM claim they have very similar cultures, and the two companies have successfully partnered for a long while along a number of different product and solution lines, from DB2 to WebSphere and a successful installation track record.
Upside Uptake
Upside Research believes that this merger is a positive move on all counts. Both IBM and FileNET customers will ultimately benefit from the combined forces of leadership in BPM. IBM has long been an established leader in enterprise integration, and its evangelization of Services Oriented Architectures (SOA) as it relates to BPM has helped bring BPM to a new level in the past year. For its part FileNET has helped to build a new market for content-centric BPM out of a rather mature content management and archival market, propelling itself to the front of a burgeoning market. IBM has realized the benefits of acquiring an existing success in this market rather than trying to create its own solution in-house.
The nature of this merger brings to mind the merger late in 2005 of Metastorm and CommerceQuest, where Metastorm’s human-centric BPM platform acquired CommerceQuest’s strong, back-office BPM integration solution. At the time, Upside Research applauded the move as a strategic one for Metastorm to pull ahead in the pure-play BPM market. Since that time, Metastorm has been working diligently to integrate CommerceQuest’s product with its BPM platform, and its most recent release of Metastorm BPM 7.0 reflects the integration of the two companies’ solutions.
IBM is in a stronger position than Metastorm was with its acquisition, because the FileNET solution already runs on IBM’s platform, and will be easier to integrate once the merger takes place. This is a bonus for existing IBM and FileNET customers, because they will be able to readily leverage the combined entity after the merger. It will also enable IBM to focus on value-added services and enhancements rather than working at the integration level to get the products to work together.
Upside Research believes that the impact on the overall BPM market will be significant once IBM and FileNET combine. The two companies together will create a powerhouse that will have both breadth and depth, making it difficult for smaller companies to compete against it for larger solutions, especially if IBM is successful in creating more industry-specific solutions leveraging the FileNET technology. Upside Research believes that both pure-play BPM solutions and infrastructure BPM providers such as IBM need to continue to build their best practices and vertical expertise with pointed solutions that target their proven success areas in order to continue to grow the BPM market and their revenues.

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