BPM Market Changes – IBM to Acquire FileNet for $1.6 Billion

IBM today announced they will acquire FileNet, a leading document management company with comprehensive Business Process Management capabilities. This is a very interesting acquisition that addresses a gaping hole in IBM’s BPM strategy while signifying the importance of the BPM market to even the biggest players in the software industry.

ARMONK, NY and COSTA MESA, CA – 10 Aug 2006: IBM (NYSE: IBM) and FileNet Corporation (NASDAQ: FILE) today announced that the two companies have entered into a definitive agreement for IBM to acquire FileNet, a publicly held company based in Costa Mesa, Calif., in an all-cash transaction at a price of approximately $1.6 billion, or $35 per share. The acquisition is subject to FileNet shareholder approval, regulatory reviews and other customary closing conditions. It is expected to close in the fourth quarter of 2006. (full press release is available here http://www-03.ibm.com/press/us/en/pressrelease/20100.wss).

Prior to the acquisition, IBM has struggled in communicating a coherent BPM strategy. Certainly they have offered BPM capabilities, but that offering has been tainted by an approach with too many pieces that do not fit into a cohesive solution. The lack of clarity, heavy technology focus, variety of technologies and limited unification of these pieces as a solution have left IBM below par with the market, even in regards to offerings from others that lag the industry like Microsoft and SAP. In some cases (like with the Rational products) the story is so technology-focused that it is difficult to see any possibility of resulting agility that can meet current market pressures—let alone market pressure escalation expected in the near future. The fact is, that to date, the IBM business process management success story is far more of a service-based story than it is a product story.

The acquisition of FileNet changes all that (potentially). With two distinct camps making BPM technology purchases; one seeking to directly address business pain points while the other seeks to build “agile technology infrastructure” as comprehensive technology architecture; IBM will now have the ability to be a prime-time player in the ‘business pain’ market where offerings without FileNet were woefully inadequate. This makes sense, as even though the ‘architecture camp’ is characterized by two groups (managed complexity that does result in new agility and overt complexity that does not) businesses are spending a lot of money in these areas. Though in many cases investments in this approach may fail to produce real value to the organizations making the investment, the reality is that real money is flowing in this market.

The business pain market, which is characterized by interest in packaged BPM technology that can be easily deployed directly against known business problems, is the other BPM market. This market is also seeing very significant purchasing trends. This is the market that IBM has not been a real player in, and the market FileNet gives IBM the technology to become a serious player in (along with industry leading document management capabilities).

Of course, it’s not clear yet how IBM will articulate their BPM offerings after the acquisition. FileNet gives them the technology to extend their solutions into the business-driven market but how they will transform their messaging and go-to-market strategy is not yet known. The acquisition of FileNet fills out the technology stack for playing in both of these primary BPM niches. Now we will need to wait and see how IBM chooses to use FileNet in their BPM product/service strategy.

The acquisition certainly makes sense and it signifies the growing importance of BPM at every level of the software industry. IBM is playing catch-up in this market. The acquisition of FileNet can be the lever for placing them in a very strong competitive position in both BPM market niches (technology architecture and business issues). We will need to keep a close eye on what happens as FileNet is incorporated into IBM’s story.