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OpenText's purchase of Dell EMC's Enterprise Content Division is the latest example of the company buying up maintenance streams, consolidating the support and sales teams, and gaining profit.
The $1.62 billion OpenText acquisition includes Dell EMC's enterprise information management (EIM) platform Documentum; document archiving platform InfoArchive; and LEAP, a cloud legal software platform. The purchase didn't surprise industry analysts as much as the price tag did, but once Dell bought EMC last year, its Enterprise Content Division (ECD) products were already on the way out.
"OpenText specializes in purchasing software that is past its prime but still has a lucrative maintenance stream," said Tony Byrne, founder of Real Story Group, an Olney, Md.-based research and advisory firm. "OpenText purchases software and adds it to its business model where they basically swap out all back-office and front-office vendors, use its own people and gain cost savings."
The OpenText acquisition may concern Documentum customers, because it's unlikely that OpenText will build out the product much further, especially since it has similar in-house offerings.
"If Documentum customers had the thought that someone would take Documentum and modernize it, those fantasies have been put to rest," Byrne said. "OpenText will do dot upgrade and fix bugs, but it doesn't modernize and transform any tool they've acquired."
Dave Giordano, founder of Chicago-based Technology Services Group, which helps develop and integrate content management systems, said in a blog post that Documentum's customers' loyalty may be waning with all the recent changes.
Tony Byrnefounder, Real Story Group
"From our discussions with Documentum customers, while most have stayed with Documentum, it isn't necessarily based on a feeling of warmth for the company or the brand," Giordano wrote. "Loyalty to the platform and the maintenance payments for many is more a decision based on the difficulties in moving, integrations required [and] the cost and risk to move than it is love and loyalty for the Documentum software and brand."
While Documentum customers may have cause for concern, Byrne said that as far as overseers go, OpenText has a track record of maintaining legacy products.
"In general, OpenText has been a responsible steward of the tools it has acquired," Byrne said. "It doesn't kill them outright, but rather acts as a convalescence center and keeps them supported."
And although Byrne suggested that customers won't rush to the exit of Documentum, it would be smart to start researching viable long-term alternatives -- a possibility that OpenText should be aware of as well.
"You can't just tell a customer one day that you have to switch from Documentum to OpenText," Byrne said. "Then the customer will just go find something on the open market. OpenText is very comfortable selling multiple products that nominally compete."
However, Ray McKenzie, founder and principal at Redondo Beach, Calif.-based Red Beach Advisors, suggested that the price paid by OpenText indicates that it will be investing in its new products. He added that the purchase rounds out the EIM company's content management suite.
"I believe OpenText made this acquisition with a long-term strategic move in mind," McKenzie said. "It pairs Documentum with a lot of products and services in OpenText's cloud. OpenText wants to become the go-to company that provides digital content solutions through the cloud."
Of the other products in the OpenText acquisition, Technology Services Group's Giordano said the company is bullish on InfoArchive, because it represents a type of product OpenText wasn't offering.
"Since OpenText doesn't offer a competitive product, InfoArchive does represent a growing revenue stream and new offering for OpenText," Giordano said in his blog post.
The price of the acquisition represents nearly three times the revenue ECD produced in 2015 and the transaction is expected to close in three to four months. Also included in the OpenText acquisition of ECD was the news that OpenText and Dell EMC will enter into a strategic commercial partnership, although few details have been released surrounding the partnership.
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