It’s been a few weeks since Symantec sent a huge shot across the bow of every e-discovery company with the acquisition of Clearwell. To be honest, I suspect their cannons were really aimed at the other big data management companies like Autonomy, IBM and EMC, but even the smaller ships in the e-discovery pond saw the cannon ball fly. From my perspective this is by far the most interesting acquisition to date. It wasn’t a surprise that Iron Mountain failed to make Stratify successful, and I’ve been even less surprised that EMC and IBM have effectively put bullets in Kazeon and PSS Atlas. In each of those cases the acquiring company either purchased a dog or didn’t bring a very compelling synergy to the table. I don’t think Symantec’s acquisition of Clearwell suffers from either of those issues.
While Mr. Hilaly and I clearly have very different views on a number of subjects, there is no denying Clearwell was a formidable tier one player in the e-discovery market with specific strength in the early case assessment phase of the discovery lifecycle. Further, Symantec has worked ardently over the last three years to capitalize on the early success of the Enterprise Vault platform and become a meaningful participant in the e-discovery market. That said, the groundwork should be in place to extract optimal value out of the Clearwell acquisition. In addition, given the working relationship Clearwell had built with Symantec, one would suspect there is momentum on which the joint company can now build. In short, looking across the entire e-discovery landscape, I think Clearwell was one of the better companies for Symantec to have chosen.
The real question is not who Symantec should have chosen but why make an acquisition in the first place. As I have said many times, the addressable market for a software company in e-discovery isn’t actually as big as some analysts claim. I don’t think I am stretching to say that if you add up all the software sales of all the e-Discovery companies in this market you would end up with a number under 500 million. While that isn’t an insignificant market, it definitely isn’t a market that will move the needle for a company that did 6.1 billion dollars of revenue last year alone. Given that, why is Symantec pushing so heavily into the space? The answer is very clear. Their real goal is to differentiate their Enterprise Vault platform, which is sold as part of their content management solution, a market expected to reach nearly 6 billion by 2014. Simple math, and one can clearly understand this is an astute business decision; if Symantec can leverage the value proposition of Clearwell to increase its market share of the content management space by just 5%, it’s the equivalent of gaining 50% in the e-discovery market.
Because the math is so convincing, one would expect considerable due-diligence on the part of Symantec when evaluating the Clearwell acquisition. I suspect the contrary where Symantec failed to perform an exhaustive assessment and possibly overlooked opportunities that better matched more strategic business objectives; instead they only looked at companies that integrated with Enterprise Vault in the “approved” Symantec method. In the approved integration the user is required to leave documents in the Enterprise Vault and to utilize Discovery Accelerator to review them. Basically, in Symantec’s view of the world, documents can only go into the EV – nothing is allowed out.
The result is, in the approved integration, customers must buy two products to support e-discovery: one for data in the vault, and one for the rest of the data that resides outside of EV.
If I am correct about Symantec’s strategy, then there are some fairly significant implications for the market as a whole. The first and most obvious is to await a response from HP, IBM and potentially another try by EMC (maybe even Microsoft). Records and content management is an important market for all of these companies, and e-discovery has become a CEO-level issue, so I doubt they will let themselves be outdone. My guess is it only takes the loss of one large content management deal for them to spin up their M&A activities. Like most material acquisitions in the business world…where there is one, there are many.
The second likely outcome is the rapid spread of Clearwell to most Enterprise Vault companies. Again this is likely more driven by the simple math of software sales than anything else. If a customer has spent 2 million dollars on an Enterprise Vault system, then that customer is likely paying 400K a year in SMS. What I would suspect Symantec will do is go to those customers and do a wrap and roll. Basically they tell the customer that if they pay three years of maintenance up front plus a slight bump of let’s say 10% for a total of 1.3 million, Symantec will simply give them the Clearwell technology. Autonomy routinely engages its clients with this proposition. So much so that we routinely find companies that own Autonomy’s e-discovery solution and don’t even know it.
The final outcome (and I am guessing here) is that the development of Clearwell’s product steers much more towards enhancing its play in the records management market and away from the e-discovery specific workflows that are so critical in the legal and litigation support market. For example, the odds that Clearwell continues to invest significant amounts of money into supporting export into popular review platforms such as Relativity, Summation and Concordance is probably far-fetched at best. Furthermore, as data volume and complexity continues to evolve, millions will need to be spent to support litigation specific processing and analysis needs. Frankly, I just don’t think there is enough money in those arenas, nor does Symantec really have deep penetration into the litigation support space. No, I think the odds are high that Symantec will focus the development of Clearwell on the needs of its large corporate customers. That is clearly the strategy that will produce the most for them both on the top and bottom line; and when you’re a $6B dollar a year company, those are the factors that guide product decisions.