Will Vignette Give Open Text Food Poisoning?

Well, my head’s full of questions
My temp’rature’s risin’ fast
Well, I’m lookin’ for some answers
But I don’t know who to ask
- MIXED UP CONFUSION

It’s been a few days since the announcement that Open Text will absorb Vignette. Most of the important analysts have thrown their opinions on the deal into the ring, and some patterns are emerging. AIIM’s John Mancini has compiled collections of commentary here and here for those that want everything in one place. I’d like to offer my thoughts on what has been said from the tech perspective. I’ve no idea about exactly what keeps shareholders happy. Everything in this post is of course pure speculation.

Why did they buy it?

According to this CMS Wire post, Open Text CEO John Shackleton has the answer:

[Shackleton ] indicated that Vignette is one of the last big players in the market and they saw a number of synergies with the web content management assets that the Vignette deal brings them. Along with sharing a number of high profile brands, Shackleton also indicated that Vignette’s records management expertise and their analytics capabilities had caught Open Text’s eye.

The fact that they share clients is true, but I don’t get why that makes it a good idea to buy them. Surely they want to buy new customers, not the ones they have already? The WCM synergies bit might make some sense. The rest is nonsense. I’ll talk about Open Text’s more mature records management expertise later in this post, but what exactly are Vignette’s analytics capabilities? If we mean Vignette Experience Optimization Products, I thought that those were:

Recommendations, which is an OEM’ed Baynote with a light sprinkling of new features
Analytics, which is just Omniture SiteCatalyst and a “best practices integration guide”
Advanced Search, which is “a more powerful version of the IDOL engine from Autonomy”. Not sure what the “more powerful” bit means. I wonder if Interwoven will get the weak version from their new parent company.

Surely Open Text isn’t buying OEM deals? Let’s try another justification, from RBC Capital Markets analyst Mike Abramsky:

Vignette’s WCM solutions/technology/expertise brings to OTEX sophisticated features (transactions, analytics, ecommerce, etc) required by larger online accounts, which represent a lucrative opportunity and potentially a growth area when the economy rebounds.

Where do they get this stuff? Analytics mentioned again. What “transaction” or “eCommerce” sophisticated features will Vignette’s WCM solution bring? I suspect they bought it for exactly the reasons I don’t understand, don’t like, and will eventually screw the implementers and customers. Which is why none of the official press releases make much sense. The unofficial commentary from people like CMS Watch (Kas, Alan) is surely closer to the truth.

Vignette was sitting in the Enterprise CMS Vendor Clearance bucket, so Open Text got it extremely cheaply. The reasons for the acquisition are certainly strategic and don’t involve technology. Open Text have bought plenty of other CMS vendors and the products ended up on the fast track to oblivion. Five years ago, a post from Bloor Research entitled Open Text Rolls Out The First Fruits Of Its Merger With Ixos started like this:

You could imagine that Open Text had been suffering somewhat from indigestion after having recently acquired a range of content management and Web publishing companies that include Ixos and Gauss, not to mention Corechange and Obtree. Open Text says that the fit between Ixos and Open Text, its most significant acquisition, has been excellent with very few overlaps in capability.

Where are Ixos, Gauss, Corechange and Obtree now? I wonder if history is repeating itself.

Will the Technical Stacks Ever Merge?

As I said in my previous post on the acquistion, the Open Text and Vignette technology stacks overlap enormously. Virtually every Vignette product is man-marked by its Open Text counterpart. So will there be consolidation and integration within the product suite? Most likely, no. Most analysts think that the products are going to stay separate. Even if they wanted to, they probably couldn’t. I like Alan Peltz-Sharpe’s summary of this the most, from his CMSWatch posting Why Open Text bought Vignette — the real story :

Gluing them together is just not feasible on this scale, it cannot be done regardless of what the marketing from Open Text (or Autonomy in it’s turn) might like you to believe. All you can really do is to slash costs where possible, leave the technology pieces alone as much as possible, and milk the product and customer base as cash cows.

So Can Open Text Milk These Cash Cows?

Where does Vignette currently get its revenues from? Here is a summary of the figures from Q1 2009 taken from the earnings report. It compares the numbers (which are in $ millions) from Q1 2009 with the same period in 2008.

The numbers are lower in 2009 than 2008. No surprises there. Digging a bit deeper into the three areas:

Licenses - New license sales seem to be about 20% of the revenue, and that’s likely to continue to decrease significantly with the current economic climate and the uncertainty created by the aquisition
Maintenance and Support – This is currently over half of their revenue. Certainly the fattest cash cow which needs to be milked with care. Service levels need to remain constant or improve. Many existing customers will be relieved that Vignette have been acquired and will happily continue paying here if Open Text can keep them sweet.
Professional Services – This was traditionally a large part of Vignette’s revenue. I remember people saying that at one point it was 50% of the total but my top secret sources (Yahoo! Finance) don’t think it has been that high for many years. It was 33% in Q1 2008 and down to 25% in Q1 2009. I can’t see this rising dramatically. VPS earn cash when new projects are sold, so their revenue contribution will fall as licenses fall. I wonder if VPS and Open Text Professional Services will merge.

Clearly just milking the Maintenance and Support cow isn’t enough as Vignette is currently losing money. What about new opportunities for OTEX:

Migrations - The existing Vignette customers will not have an appetite for expensive migrations to Open Text products, and would probably like to stay where they are. It is also unlikely that Open Text would want to migrate any customers in the other directions. Not many migrations will happen in either direction.
Cross Sells/Up Sells – This seems to be where everyone is betting the farm. If OTEX can’t sell new products or services into the existing (non-profitable) client base, the whole thing might have been an extremely bad idea.

This is summerised nicely by Gartner’s Toby Bell in his article Win ‘Em, Wring ‘Em, and Wean ‘Em. He also adds an important insight about the timing of Open Text’s move:

Open Text seems to have wisely waited until the falloff of potentially more fickle customers and prospects had been completed. The business core thus revealed, it swooped in with the right offer at the right time. VIGN’s value to Open Text is not the technology, it’s the seats. The very plushy ones of large enterprises with global potential to look at one of its own (now) incumbent suppliers to provision other user needs. And, Open Text has options for those enterprises in spades.

Open Text have now Won ‘Em. I don’t think they’ll be able to Wring ‘Em for much. The most important piece is how well they will Wean ‘Em.

What’s the Open Text new sales strategy going to be?

Let’s forget the past, for a second. Picture the scene – you’re a sales guy with a Vignette history and an Open Text business card and you’re meeting with a new prospect. What are you going to be selling?

You’ll still be selling Vignette Content Management (VCM). It has the perception of being “more enterprise” than Open Text Web Solutions nee RedDot. It is possible that they’ll follow a similiar model to Alterian and have two different tiers. Alterian have Corporate Edition (Immediacy) and Enterprise Edition (Morello). However, Open Text already push their RedDot solution as Enterprise ready (for example, this recent press release ), so I think it is more likely they’ll split on technology. If a customer has an existing J2EE infrastructure they’ll sell Open Text Web Solution For Java (a.k.a Vignette), and they’ll sell Open Text Web Solution.NET (a.k.a. RedDot) to the Microsoft based clients. Of course they need to brand all this nicely so that the customers don’t get confused.

Vignette Application Portal (VAP) will also be on your selling list. It is the only major product that doesn’t have an Open Text alternative, so it could lead a long and healthy life. Open Text might also push this to their existing customers as the delivery mechanism of choice. I hope they only do this when it is appropriate – see my previous rant on Portals That Walk And Talk Like Ducks. If both VAP and VCM are sold, that probably means that Dynamic Portal Module (DPM) won’t get the bullet quite yet. Pity about that.

Digital Asset Management will be Open Text’s Artesia. Possibly the end of Vignette’s Rich Media Services. Maybe it will still be sold into certain verticals, but I wouldn’t bet on it. Vignette IDM already has an integration with Artesia. Speaking of which, I’m not sure if the Imaging part of this will survive either. The Document Management product of choice going forward will undoubtedly be LiveLink. After the Tower aquisition, “Vignette never really figured out what to do with the document management solutions and they dropped out of sight as far as the market was concerned.” Open Text as a company understands Transactional Content Management better than Vignette does, has a long history of Records Management, and I think all their products will dominate in this area. The quote is taken from the timely article Google should buy Vignette – but not for the obvious reasons by Michael Wilson, who knows more than most about Vignette’s capabilities in this area.

The bad news for our hyphothetical salesman is that I don’t believe we’ll be seeing many large new sales this year. Some people think otherwise. For example, Yuval Ararat blogs here that the Financial Sector is going to wake up soon, and that’s going to be good news for Vignette and their pipeline-waiting-to-happen. They do have a large financial sector client base, but this might be part of their problem at the moment. I hope Yuval is right, but I don’t share his confidence.

It’s been over ten years since Vignette IPO’ed. I started working with it in the days of Story Server. I hope that some of the technology makes it into the next generation of Open Text products. Surely they wouldn’t spend all that money and kill off the tech? But $310 million is a fraction of what Vignette paid for OnDisplay in the dot-boom days. And we all know how much of that technology survived.

Jon On Tech

Archives