In Focus: Why EMC Is Buying a Capture Kingpin

Capture software is the on-ramp to content management and, as proven by its acquisitions of Documentum and Legato in recent years, storage giant EMC sees content management as a major highway to information lifecycle management. Now, EMC wants to own the onramps as well as the highway, announcing last week its intention to acquire San Diego-based Captiva Software for $22.25 per share, or about $275 million in cash.

Set to be completed late this year or early in 2006, the deal will bring one of the largest capture vendors under the EMC umbrella. Capture software supports high-volume document scanning, combining text, barcode and handwriting recognition software with data integration, validation and rules capabilities to automate document image indexing. It also supports data extraction and validation from forms such as insurance claims and loan and account application forms.

Just as the content management market has consolidated in recent years, so too has capture, and Captiva has been among the consolidators, acquiring Webb Systems, Input Software and, most recently, SWT of France, on its way to becoming one of the two largest vendors in the category. Captiva reported sales of $68 million in 2004 (before the acquisition of SWT), while rival Kofax Image Products had sales of approximately $83 million last year.

EMC said the merger will help customers realize "a consistent and integrated archiving and retrieval approach for all information," but there's little evidence new technical synergies can be achieved. Most enterprise content management vendors offer their own capture modules, but third-party providers--including Captiva and Kofax as well as Any Doc Software, Captovation, Datacap, Doculex, ReadSoft and Verity (which acquired Cardiff)—tend to offer more robust and automated capture systems. Like other independents, Captiva partnered with EMC and other content management vendors, including IBM, FileNet, Open Text and Hyland Software. EMC vowed it will "continue to develop Captiva Software as an open platform," but the acquisition will undoubtedly make these rivals far less likely to endorse or encourage joint deployments with Captiva when customers need more capable capture software.

From another perspective, however, Captiva's base of 5,000 customers (reportedly including half of the Global 2,000) will provide a rich source of leads for EMC, potentially driving sales of Documentum ECM systems, Documentum Application Xtender (a departmental content management system formerly sold by Legato) and EMC storage products including Centera systems. There's also the fact that FileNet, for one, reportedly gains as much as 20 percent of its revenue from sales of its own capture software. And FileNet recently released an upgrade to its capture software, claiming tighter integration with records retention functionality.

With the acquisition of SWT, Captiva was well on its way to reaching $100 million in sales this year, which isn't huge compared with EMC's $8 billion-plus revenue overall, but it will significantly bolster the EMC Software Group, which has been driving the storage giant's growth.

There's also evidence that capture vendors and technologies are being drawn into industry-specific applications and processes. For example, two erstwhile Captiva competitors have been acquired within the last year, Dakota by healthcare giant WebMD (which may spin it off along with its claims processing business) and Recognition Research Inc. by financial services, education and public sector specialist SunGard. Even some of the so-called enterprise content management vendors are pursuing process- and vertical-industry specialization, so can smaller capture vendors be far behind?