By Andrew Lawrence
Documentum Inc, the US content management company, has been selling its set of high-value document management software tools since 1993 to select groups of high-spending customers, especially pharmaceutical giants. In the process, Documentum has become one of fastest growing software companies in the US, with a five-year compound annual growth rate of 3,500%. In 1998, its revenues reached $124m, placing it comfortably within the top 50 software companies in the US.
But for Documentum, this is not enough. The company estimates that, in large companies, the average ‘per seat’ software spend on operations functions, such as supply chain management, is between $2,000 and $4,000. But the amount spent on the innovators, the knowledge workers who create the real value at companies such as drug maker Pfizer, is about $300. There is an untapped pool of IT spend, says Wiener.
That is why Documentum recently announced what it describes as the most important strategic shift in its history. After six years supplying a basic, underlying toolset, it is now moving into the supply of ready-made applications for vertical markets. In March, it announced its first move in this direction with the Web-enabled Innovation Application Series, designed to help with research, quality projects, risk management and marketing and sales. We will evolve from being a document management platform supplier to being an applications company, says CEO Jeff Miller. He likens the shift to the one that Oracle took advantage of back in the late 1980s. At that time, big customers were buying databases and tools and then building their own applications. Now, customers buy their applications from SAP AG, Oracle Corp and others.
But Documentum’s insight is not unique. All of the leading group of so-called content or document management companies, including Open Text Corp, FileNet Corp, PC Docs Inc (recently taken over by Hummingbird Communications Inc), and even IBM CorpÆs Lotus Notes division, have begun to focus more on developing specialized solutions for their most influential customers. Lotus, for example, has recently said it wants to focus less on its big ‘numbers’ war with Microsoft Corp and more on building up customer-focused application solutions. And FileNet has recently re-packaged its portfolio product Panagon as a document management suite, which enables its partners to build more sophisticated applications using a basic set of tools. We’re just starting to do our own applications, says Lee Roberts, FileNet’s CEO. But even if I had 1,000 programmers, I couldn’t program everything customers need. Panagon has, therefore, been redesigned to allow third parties to use Microsoft programming tools to build applications.
In spite of some of the apparent strategic similarities, the sales stories, the positioning and the software architectures of the different solutions vary so widely that there is yet no clearly defined sector that could be labeled ‘knowledge chain management’. And if a clear market for sophisticated end-to-end solutions, along the lines of ERP, is emerging, Documentum can lay claim to two big advantages. First, it has been concentrating for so long on key niche markets that its focus on applications really amounts to capturing in code the knowledge it has already built up working with customers and partners. And second, it has always focused on providing mission-critical systems for serious customers: We have the most advanced understanding of the interplay between business processes and business-critical content, says Wiener.
In spite of Documentum’s high growth history and its strategic clarity, there is one issue that may overshadow the impact of its message. Its first quarter results to March 1999 show revenues down 4.3% to $24m, with operating losses of $4.4m. Although the impact of the new strategy will not yet have kicked in, these are not the figures of a young SAP. Chief executive Jeff Miller blamed a general purchasing malaise and, underlining his point that he has no strategic concerns, initiated a $20m stock buyback. But some analysts are forecasting that a fierce battle lies ahead between the lower end, more generic tools, such as Notes and PC Docs, and the highly engineered, application-specific solutions from Documentum.
