EMC Expands Software Lineup With AcquisitionEMC Expands Software Lineup With Acquisition

When Joe Tucci was named president and CEO of EMC Corp. in 2001, he made it clear that the storage market leader needed to change its focus from building expensive boxes to providing customers with more software and services. Since that time, he's spent billions of dollars to accomplish the shift.

EMC stayed on that path last week by unveiling plans to acquire content-management software vendor Documentum Inc. in a stock swap valued at around $1.7 billion. In July, EMC moved to acquire backup software maker Legato Systems Inc. for another $1.3 billion.

Tucci says Documentum's products will help EMC customers track and control access to documents and other forms of unstructured data, the fastest-growing type of data at many businesses. "Powerful software functionality from Documentum and EMC will give customers valuable information about this type of data across the enterprise, so it can be classified, managed, and then migrated to optimum storage resources automatically," Tucci said in a letter to customers.

Documentum's software fits nicely into EMC's plan to provide information life-cycle management, the ability to manage data from creation to deletion. The software also will help EMC develop a more-complete software shell for products such as its Centera secure storage system, which lets many people view--but not change--data.

Documentum CEO Dave DeWalt, who'll become president of EMC's Documentum division, says there's a billion-dollar market for managing unstructured content. "I have the product," he says. "What I've been missing is the sales capacity, the channel capacity, and the customer reach." EMC provides those. After the deal is completed, Documentum's 400 sales reps will join EMC's 10,000 sales and service reps. DeWalt foresees an intelligent content-management offering from the combined companies that can take the place of computers that run things such as insurance-claims processing systems.

EMC's sales reps have helped the company achieve strong financial results in a market where storage prices have been falling for several years. For the third quarter ended Sept. 30, EMC reported revenue of $1.5 billion, around 20% higher than a year earlier. Net income was $159 million, more than seven times what it reported a year ago. Software sales made up 23% of total revenue.

The storage vendor's bid to acquire Documentum is a "a gutsy move," says John Webster, an analyst at Data Mobility Group. "It's a clear strategy for EMC," he says, "but it's not clear that Documentum customers will support the merger."

However, at least one Documentum customer sees advantages in EMC's acquisition. Jessica LeFur, director of document management at OSI Pharmaceuticals Inc., was working on a submission to the Food and Drug Administration using Documentum's software when she heard the news. "I don't see any negative impact," she says. OSI also uses Legato for backup and recovery. "I manage three different contracts," she says. "EMC could package Documentum and Legato together, and I could end up with one company to turn to for support."

A Documentum competitor doesn't expect the deal to have a major impact on the content-management market. "Customers want fewer vendors but don't want to be captive to anyone," says Lee Roberts, CEO at FileNet Corp. Businesses "have a mix of EMC, [Hitachi Data Systems], and IBM storage," Roberts says, "and we can run over any operating environment."