Friday, 27 February 2009

“Never interrupt your enemy when he is making a mistake”

“Never interrupt your enemy when he is making a mistake” – Napoleon

One of the strategies used by Napoleon, when faced with superior numbers, was the use of speed and focused attack to gain the central position. This allowed Napoleon to drive a wedge to separate the enemy armies. He would then be able to overwhelm his enemy in smaller targeted battles against mightier forces.

The reason I mention this, was that it occurred to me late last night that the WCM sector is still very segmented and may be vulnerable to such a strategy against some of the less focused players, who also operate in the sector. By a few well timed strategic acquisitions there is an opportunity to gain a dominant hold on the WCM sector.

Although there are massive repercussions across all industries and sectors due to the credit crunch the WCM sector will probably do better than most. This is a technology that is coming of age. There are still massive opportunities as companies continue to buy WCM solutions.

FatWire Software has reported 40% revenue year-over-year growth in 2008, taking it to $44m. The company reportedly rebuffed acquisition approaches last year, as it focused on growth and updating its product line under new management.

The opportunities for consolidation are evident. Vignette have been a potential likely target for some time despite with 2008 revenue down 11.6% from 2007 and Q4 specifically down 29.4% year over year. License revenue is especially weak, with just 19.5% ($7.3m) of total Q4 revenue coming from licenses. Overall, the company reported a net loss of $6.3m for the year. However, this could be seen as systematic of them possibly struggling with internal issues of integration and capitalisation, given their acquisition of Tower Software in 2004, when they added workflow and imaging.

Sitecore claimed 100% growth in its fiscal 2008, which ended June 30. However it must be taken in to consideration that this is from a relatively small base circa $10m for fiscal 2007. Sitecore's fiscal 2009 revenue is expected to be in the $30m range.

There maybe an opportunity to gain new business against slower less focused forces. The likes of Interwoven who have been recently swallowed by Autonomy, are one of a number of larger but less focused players in the WCM sector.
Would a multiple consolidation in this sector gain battle advantage by following the Napoleon strategy, to create a relatively large but more importantly focused and specialist force in WCM?


  1. Good post on vendor numbers, but it would be fantastic if you took it one step further:

    These days, plenty of Bloggers tend to focus on WCMS vendor revenues, but no one has critically been looking into the split of revenues.

    First, some WCMS vendors produces a vast range of products. How much of comes from their WCMS (I don't think the vendors will deliver or can deliver such numbers)? But an estimate would be great.

    Also, is it services or raw license sales? For example, going to the Fatwire press release, Fatwire Reports..., it becomes obvious that the increase in revenue is fueled by a high 60% growth in services and 30% growth in licenses revenues.

    Some vendors has changed this year from a previous strict partner channel to also supply services (e.g. Ektron): By shifting tactics, companies will be able to grow their revenue significantly (would usually grow services revenue, but would result in a license sale drop. Implementation costs is usually 2-4 times higher than software costs).

    It would be great to see a revenue split for the individual vendors on: services, training, license sale.

    And while looking on the number for license revenue, how much of that is driven by recurring upgrade agreements (which for older vendors should be the vast majority)? I would expect to see older vendors with a long tail of existing customers get 80% or more of their revenue from upgrade agreements).

    Also, when looking at growth numbers, please remember that past years upgrade fees affect the license revenue growth: Assuming that Fatwire claims a yearly upgrade fee of 20%, the real license growth in new licenses is closer to 10% as their license revenue growth accumulated was 30%

    Not picking specifically on Fatwire, - I am sure a number analysis will paint the same picture for almost all vendors.

    It would be great to see a more in-depth data analysis by: New licenses revenue, upgrade revenue, Services revenue and "other" revenue.

  2. Thanks for your comments and I think they are well made. However, what I do and what Document Boss is basically "Deal Makers" in this sector. I don't want to be perceived as an analyst. I want this blog to be my thoughts predominantly around the mergers and acquisitions opportunities within our sector and also reflect on some of the reasons that I believe that acquisitions could be conducted in a manner that would produce much higher results than we have been seeing.

    Saying that I do wholeheartedly welcome further input and comments such as yours that may want to put forward their more detailed thoughts looking at the companies in a more granular view. For Document Boss this comes as part of M&A process once we are zoned in on a target and as you can probably guess does not come without a cost. :-)