Migrated from eDJGroupInc.com. Author: Barry Murphy. Published: 2012-07-26 06:00:59Format, images and links may no longer function correctly. In the wake of our article on the winners and losers in the eDiscovery software market, a client recently suggested to us that the software giants are not yet the best landing spots for eDiscovery software vendors.  The impetus for this observation was news from two vendors – Symantec and HP – that software acquisitions in the eDiscovery market had underperformed.  The revenue from Symantec’s Clearwell business was less than expected in calendar Q1 2012.  HP’s executives admitted on their last earnings call that the Autonomy license revenue had a significant decline year-over-year.

There is not enough specific information available to make a broad statement that the software giants are not doing well with eDiscovery.  IBM reported information management software revenues to be up 5% in its earnings call last quarter, but the financials do not break out further into specific products.  eDJ’s consulting team has seen good things from the Atlas (formerly PSS Systems) product feature/function-wise in RFPs, but it is not clear how much that product contributes to growth or how well it has been integrated to other, related IBM offerings.  EMC, in general, looks to have year-over-year growth in its information management segments, but like IBM, EMC does not break out the revenues by specific enough products or segments to judge what impact the Kazeon and SourceOne product lines have had on that growth.

The situations with Symantec and HP both have their own unique intricacies.   The success of the Clearwell business is dependent on many other factors: the successful sale of more Enterprise Vault archives; the enterprise-grade integration of the Clearwell product with the Enterprise Vault product; the merging of two sales forces; and the exit of some Clearwell staff.   All of these factors seem to have come together to stunt the growth of the Clearwell business over the last year.  The situation with Enterprise Vault (EV) 10, the most recent version of the product, is complicated.  EV 10 finally replaces the dated Alta Vista index with a modern 64-bit index, but none of the new search capabilities are accessible through Discovery Accelerator (DA) as yet.  Anecdotal evidence from our network of independent consultants and resellers suggests that EV 10 originally was not selling well, but the pace of sales has increased since the recent release SP1.  A spokesperson for Symantec said, “In addition to the usual integration challenges in any M&A activity our customers are taking additional time to understand the expanding the scope and size of the solution we can deliver as a combined entity.  The discussion of the DA product and the core indexing features within EV are not applicable to a joint EV-Clearwell solution, but does cause some confusion and slow down some sales cycles.”

There has also been turnover in the ranks of the EV sales specialists, which suggests that Symantec is struggling with the Clearwell sales team taking over the IG / eDiscovery sales cycles.  There has been some meaningful product integration, so if Symantec can get the archiving strategy (the company has the on-premise Enterprise Vault product and the Cloud-based LiveOffice business) straightened out, the Clearwell business should pick back up in our opinion.  That said, Symantec must act quickly to regain the Clearwell momentum and do so without most of the high-level executives (Clearwell’s CEO, CTO, lead product manager, and marketing head are no longer with Symantec) that built the Clearwell business and brand.  According to Symantec, those departures planned for and part of the acquisition agreement.  Symantec claims that a testament to the value joining EV and Clearwell is the number of customers who are choosing both products together in initial purchases or adding CW to EV implementations or EV to CW implementations as their experience and sophistication grow.  The results of the next few quarterly calls will tell if that is turning into revenue growth.

In the case of HP/Autonomy, the most telling sign of trouble is that former Autonomy CEO Mike Lynch is no longer with HP.  That suggests that HP believes a full culture change is needed to turn the Autonomy business around.  Culture change occurs slowly.  There were many questions about the Autonomy business at the time of the HP acquisition and it appears that HP is having trouble integrating Autonomy in a way that captures synergies and grows the Autonomy business.  Recent feedback from a current HP sales rep is that Autonomy relied on a relatively flexible/nimble sales closing process that has ground to a halt in the HP bureaucracy; that could contribute to why they missed their quarterly numbers.  Another Autonomy insider suggested that the disappointing financial results may not actually be due to eDiscovery products, but rather to a general slowdown in other products (like web content management), but there is no financial evidence either way. Meg Whitman, HP’s CEO, blamed Autonomy’s disappointing performance on classic company growth issues.  During the company’s Q2 earnings call, Whitman said that the issue “is not the product.  Autonomy is a terrific product. It’s not the market. There is an enormous demand for Autonomy.  It’s not the competition.  I was wondering, is there a competitor that we didn’t see, and the answer to that is no. This is classic entrepreneurial Company scaling challenges.  And I have seen this movie before. When you try to go from $40 million to $400 million to $1 billion to $2 billion, boy, it takes, it’s a whole different ball game. And we need to put in some sales processes. We need to put in better interface into HP in terms of how Autonomy interfaces with our services business, as well as our server, storage and networking business, and we need a new organizational structure to support a $1 billion-pluscompany.”

eDJ predicted last fall that the Autonomy acquisition would not be the end of HP and we still believe that.  HP will have to be much more nimble in crafting a go-forward strategy for the software group than it has been.  One reason Autonomy’s numbers were down this year is increased competition from smaller vendors.  The smaller vendors are able to move quickly because they lack the bureaucracy inherent in large vendors like HP.

There is not enough evidence to definitively state that large vendors are not able to dominate the eDiscovery market.  The Symantec and HP experiences are a caution, however, and point out how difficult it can be to integrate a smaller software company into a large one while maintaining momentum.  There are too many variables at play to make blanket statements about how to best integrate an acquired eDiscovery company – product fit, culture, sales organization, customer types, etc.  But, might these examples prompt the next layer of mid-sized eDiscovery solution providers to think twice about the potential for acquisition?  There is something to be said for having the freedom to be flexible and create very intimate relationships with customers; that gets harder to do as a company gets bigger.  But, that is exactly what an eDiscovery sale requires – a level of intimacy with customers.  There will be continued consolidation, but I believe there will be more scrutiny and planning as all involved seek to avoid the business downturns that some of these merged entities have encountered.

At the end of the day, consolidation does need to happen – corporate and law firm customers are demanding integrated eDiscovery platforms.  These customers will not want to buy point products forever; the software giants will have a long-term advantage in terms of the resources to put together an eDiscovery platform and sell it within a broader portfolio of information governance and management applications.  And, more and more big vendors are dipping toes into the eDiscovery market.  Dell recently bought Quest Software for over $2 billion and has quietly been building a $30M eDiscovery business just collecting data.  Dell bundles a server based collection appliance that has AccessData’s FTK and Guidance Software’s EnCase on – when the end-user has an issue, they go directly to Dell Support for assistance.  Google recently announced its Vault for archiving and eDiscovery on data in Gmail and Google apps, and Microsoft is building more eDiscovery capabilities into Exchange 15.  The big vendors are circling and will need to be dealt with.  There is real opportunity for some of the smaller players to gain traction now by building intimate relationships with Legal departments and being nimble in the sales process.  Those that are successful and grow quickly will no doubt catch the attention of the big vendors.


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