C3 Associates

The recently-completed quarter marks the first financial reporting cycle since Microsoft released their latest version of SharePoint, Microsoft Office SharePoint Server (MOSS) 2007. This is the first version of the tool that could be considered to be a true competitor to incumbent ECM vendors (although there’s plenty of debate about that, see my last post for more).

Based on what I’ve seen in the Calgary ECM and document management market I have a sinking feeling that established ECM vendors could have a hard time making their numbers. I know of several organizations that have deferred their decision about the purchase of an ECM suite until it becomes clear exactly how SharePoint 2007 performs in some of its early implementations and I’ve also seen several organizations dive headlong into MOSS deployments. Either way, this translates into reduced license revenue for established ECM vendors in the short term. If this is a trend beyond Calgary, which I’m virtually certain it is, vendors like Open Text, Vignette, Interwoven and OnBase could be in for a rough year.

The first three in that list are public companies so we can keep an eye on them to see how exactly they do, and two of them have reported already. Vignette shares took a tumble after reporting their first quarter results last Thursday. Revenues were steady and EPS was up but curiously they’ve cut their sales and marketing budget by about 20% over last year. This helps them report healthy profits but it strikes me as a bit short-sighted in a battle for market share with Microsoft and other software giants taking an interest in the ECM space. Interwoven has seen an increase in revenue but their share price has flattened out over the past three months or so, coinciding nicely with the release of MOSS. There could be many other reasons for this, of course, but it seems likely that the presence of Microsoft in this space is having an impact. Open Text seems to have bucked the trend, their acquisition of Hummingbird reflecting nicely on the bottom line in their second fiscal quarter release back in February. Rumours also persist that they’re a takeover target, SAP or HP being the most likely suitors. However, I’ll be very interested to see what the numbers look like this Wednesday when they release their third fiscal quarter results.

Is this the start of a trend towards very large vendor domination of the ECM space? Probably, if past history is any indication (remember SQL Server’s humble beginnings?) But all is not lost for incumbent ECM vendors. As I noted last week, established vendors are miles ahead when it comes to full-function ECM. Compliance, line-of-business application integration and countless mature vertical markets will continue to serve traditional ECM vendors well. The trick will be convincing purchasing departments that there is a role for both SharePoint and a full-scale ECM tool. And this, I think, is the reason that established ECM vendors are likely to go through a bit of a rough patch over the next quarter or two. Until it becomes clear what use-cases MOSS satisfies, and where it still has a ways to go, sales of full-scale ECM applications are likely to suffer.

This probably means that the sales pitch of the ECM vendors will take on a different form, perhaps targeting vertical deployments rather than the grand vision of a system that spans the enterprise. Most have released SharePoint integrations and have as much as given up on the collaborative space. While this is necessary it may be contributing to the confusion in the market. The question ECM vendors need to answer is; “Why would I integrate your tool with theirs when I could just buy theirs?” There are many good reasons as I’ve listed above, I think it’s just going to take some time for that message to get through.

 

DISCLAIMER: I am not a financial analyst and am in no way making a recommendation regarding any of the publicly listed companies referenced in this article. I do not own any shares in any of the companies mentioned above and present this information strictly as my own personal opinion.

The Principals of C3 have been having a bit of a debate as to whether Microsoft Office SharePoint Server (MOSS) 2007 can be considered a true ECM system. Obviously Microsoft thinks it is as they’ve branded the tool as such. But others like Gartner disagree, calling it Basic Content Services rather than a full-blown ECM tool. So who’s right?

There’s a school of thought that says while MOSS is a huge step forward from SharePoint 2003, it still has too many shortcomings to be considered a true ECM suite. These include a lack of vertical applications for things like SOX compliance and CAD drawing management (for now, anyway), no ability to send a persistent link to an object, no end user-accessible audit trail, and the fact that the default RM functionality is to copy a document to the records center while leaving the original file behind.

It’s hard to disagree with this; these are all true when using SharePoint out of the box. There’s no question that Open Text Livelink, EMC Documentum, IBM / FileNet or any of the other established “pure play” ECM tools provide this functionality as part of their base offerings, and a whole lot more. There are a couple of good articles in this month’s AIIM eDOC magazine that examine the issue of exactly how SharePoint measures up to traditional ECM tools; What’s the Deal with Basic Content Services by Janelle Julien and the second half of a detailed examination of SharePoint by Mike Alsup. I encourage you to have a look.

As for my take on this, like any good consultant I’ll say the answer is “it depends”. I personally wouldn’t trust my SOX audit to a v1.0 RM tool like SharePoint. That isn’t to say it isn’t up to the job, I’d just rather let someone else go first. SharePoint also wouldn’t be my first choice as a back-end repository for highly structured documents that are part of a well-established business process like AP scanning and workflow. Again, I have no doubt that SharePoint will get there eventually, but I’m not confident that it can scale to handle the load of tens of thousands of invoices a month. Established ECM tools can do this before most of us have finished our first cup of coffee.

Where I see SharePoint playing a prominent role is as an ad-hoc collaborative tool. Its ease of use and tight Office integration is an area where most ECM tools can’t keep up. SharePoint is intended to work the way the worker works, allowing them to use familiar tools to structure information in a way that makes sense in their world. These are things that make MOSS the leading BCS tool, but many of the new features available in SharePoint 2007 mean that it is on the road to becoming a true ECM application. While RM in SharePoint is brand new, experience tells me that Microsoft doesn’t do things half-way. The tool will mature and will likely meet 80% of the needs of 80% of organizations, with the missing 20% of functionality added in by the very large developer community out there. I’m certain this is how the document-copy issue noted above will be addressed, along with most other functional gaps.

The issue for any organization considering an enterprise MOSS deployment today is whether they’re willing to endure the bumps that come from deploying software that is still in its formative stages. It is also very important to understand the problem an organization is trying to solve with an ECM solution; if your goal is to simply enable communication amongst members of a project team, SharePoint is your tool. If you need to comply with stringent regulations or are at serious risk of litigation, you want to consider a more robust ECM tool. For those organizations that already have an ECM tool in place but are starting to think about SharePoint, integration might be your best bet. And that will be the topic of my next post later this week.

Microsoft has been busy updating their SharePoint resources. Here are some documents that cover the “big three” aspects of SharePoint, including an overview of the SharePoint integration capabilities of the various flavours of the Office suite that was just released yesterday (April 17, 2007).

Microsoft Office SharePoint Server (MOSS) 2007 Evaluation Guide (February 2007)
http://office.microsoft.com/download/afile.aspx?AssetID=AM102179571033

Windows SharePoint Services 3.0 Evaluation Guide (Updated March 26, 2007)
http://www.microsoft.com/technet/windowsserver/sharepoint/techref/techguide.mspx

Office SharePoint Integration - Good, Better, Best (April 2007)
http://www.microsoft.com/downloads/details.aspx?FamilyID=e0d05a69-f67b-4d37-961e-2db3c4065cb9&DisplayLang=en