Consolidation in content services market to continue as automation goes mainstream

Significant cultural shifts in the way businesses buy and use productivity applications have many content service providers on their heels, rethinking product architectures, go-to-market approaches and positioning in the broader productivity ecosystem. We anticipate renewed M&A activity from vendors looking to generate experience incentives for end users and operational value for organizations through automation of the content lifecycle and related processes.

The 451 Take

Assisted by machine learning, content services today look less like storage systems and more like intelligence engines helping businesses understand, expose and exploit, and manage digital assets securely and compliantly. We anticipate continued consolidation of content service providers as vendors seek components that bulk up intelligence and data-processing capabilities and as portfolio players add products that break down silos in the way different information types (i.e., content artifacts and conversational and structured data) are discovered, accessed and used. Topping the target list will be analytic and process-centric products that expand acquirers' ability to cater to vertical operational needs and capture more of the content lifecycle.

Market background

In previous years, the content landscape was characterized by the high rate of new entrants in the enterprise file-sync/share (EFSS) market capitalizing on the underserved need for collaboration around content. Today, the pace of new entries has slowed significantly and the sector is shaped more by consolidation than new players.

This is reflective of a changed business productivity game – one that EFSS helped kick-start not long ago. Those vendors that effectively champion a philosophy of end-user empowerment, silo-busting and process reinvention (a la Slack) are winning in attracting end users, converting prospects and raising funding. Some older providers have struggled to make the necessary architectural and user experience modernizations – others have matured and pivoted to accommodate new information management and productivity challenges. What remains of the pure-play EFSS segment, for example, is today more accurately defined as intelligent content productivity than content sharing.

The rise of advanced analytics and machine learning is evolving the role of content players from artifact storage and sharing to document analytics, intelligent information delivery and productivity, and automated management and governance. This requires more sophisticated methods of contextualizing content environments in relation to other productivity flows and organizational policies. Providers have since begun altering product design and messaging to become attractive as digital workspaces – places where end users actively choose to perform work – so as to engage end users and capture richer behavioral and operational data. Box Notes and Dropbox Paper are two such examples.

Most have also built extensive partnership ecosystems to drive cohesion of information flows across environments. We believe that opportunity for inorganic growth abounds as providers strive to accommodate more sophisticated types of engagement natively, and open out into platforms that others can develop against and build on.

Prior deals

M&A activity in 2017 has thus far continued the EFSS consolidation trend. We saw the pickup of two pure plays, Intralinks and Syncplicity, by Synchronos and Axway, respectively. Syncplicity plans to support Axway's aspirations to bring together process, workflow, applications and data on a productivity platform for digital businesses. Intralinks offers a security-centric platform that specializes in financial and regulated communities – it is intended to supplement Synchronos' regulated-industry-focused mobile, identity and security pivot. The company has since been resold to private equity firm Siris Capital Group, a primary Synchronos stakeholder. The market increasingly views stand-alone EFSS as largely commoditized but potentially powerful when part of a portfolio of productivity tools where mobilizing information, controls and insight into data flows and content-centric workflows is prominent.

The recent Redbooth-AeroFS pairing brings together content sharing, messaging and task management into a cloud productivity tool. Redbooth will be one of the first to aggregate stand-alone team workflow and content management products in one contextualized workspace. Thoma Bravo's acquisition of Lexmark's Enterprise Software division – comprised of Kofax, ReadSoft and Perceptive Software – marks the largest deal of the year. The Perceptive brand has been rolled up into Hyland Software, which despite creating some redundancies in imaging and capture, should enhance Hyland's vertical software strategy and increase its market share.

Potential targets

Automating the content lifecycle and related processes will be top of mind for most information management platform providers. Companies offering document capture and metadata extraction like Ephesoft, Square 9 Softworks, Continia, Adlib and ABBYY will be highly targeted as vendors look to reduce manual input requirements. Despite – or maybe because of – rumors of an impending IPO, we consider e-signature specialist DocuSign an attractive addition to any productivity portfolio as digital signatures become core to transactional operations across verticals. Content creation automation will become another area of exploration this coming year, with companies such as Conga and Webmerge pairing data extraction and template designers and Articoolo using natural language generation for automating collateral production – albeit via a sales enablement and marketing content lens.

We also expect stand-alone EFSS suppliers to continue consolidating, particularly those that have built process engines and intelligence components. Thru, Accellion, SpringCM, Nuxeo and Box will all be attractive targets, although we expect offers from players in other industry segments looking to expand into productivity portfolios and attract end users (i.e., security and cloud storage). As these systems become more about exposing the right data at the right time, businesses will be required to own more pieces of the collaborative productivity puzzle. Partnering with the likes of Slack, Smartsheet, Asana, IBM Watson Workspace, Wrike, Google G Suite and Microsoft Teams is the tack most have taken, but this may foreshadow acquisitions. We envisage consolidation of content, communication service and task management providers, for example, shaping new productivity experiences as users, teams and their content are brought together.

We see synergies between content collaboration and whiteboarding suppliers like Deekit, immersive visual workspace specialists such as Prysm and Bluescape, and 3D-imaging software firms like Foundry, Artec 3D and Autodesk as vendors become more focused on content productivity, especially for creative industry workers and others with a strong need for highly visual collaboration. We also believe that analytic-centric products (and teams for 'acq-hire') remain high on the priority list for content providers. Importantly, culture has become both a deal incentive and deterrent in business productivity. Following its purchase of Trello, Atlassian noted that Trello's no-sales strategy and focus on democratized team empowerment were big draws. Older players will have to explore newer and more engaging product models that can keep existing and attract new customers.

Potential acquirers

OpenText has made it its business to devour content service capabilities from providers like EMC that are uninterested in playing catch-up with the new generation of content platforms – a strategy that has made OpenText the definitive enterprise content management market share leader. We expect continued activity by this serial acquirer, primarily to obtain more market share, although it would benefit from a short break to digest and integrate its newest content portfolio additions.

As Adobe seeks momentum with its Document Cloud, it would do well to expand the breadth of its content capture, content workflow and e-signature capabilities. We see room for templated content creation to enhance its focus on sales and marketing enablement. Dropbox cast itself into the mix with the opening of a $600m credit line last spring. While we don't expect any major transactions until after the company's IPO, we anticipate activity within the next calendar year as it doubles down on collaboration functionality for creative audiences. Microsoft has been relatively unengaged on the M&A front this year as it unifies its existing product base, as has IBM, which continues to make Watson Work its productivity priority, although the company would benefit greatly from bringing a cloud-native content management play into the fold, which would offer Big Blue's FileNet client base a migration opportunity.

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