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The Situation – November 8, 1993

The ECM Market

Documentum, Inc. is a database management startup with promising software that meets the needs of the budding new enterprise content management (ECM) market . ECM has recently emerged as a profitable tool for companies in many industries. Co-founders, Howard Shao and John Newton, believe Documentum will become the next “big thing” by addressing these needs.

Documentum, Inc.’s software handles data management specific to unstructured information. This includes documents containing data such as product specifications, process manuals, technical manuals, regulatory submissions, and sales proposals. At the company’s inception, the market for programs that focused on this type of information was comparatively favorable for several reasons.

Firstly, Documentum positioned itself as the pioneer for business critical and enterprise scale clients. This gave the company an advantage in an otherwise fiercely competitive industry. On the other hand, the firm was still forced to engage in zero sum competition to an extent because each potential customer would be courted by multiple ECM proposals. Additionally, the influence of price on purchase decision for this type of product was limited because price was not necessarily the basis of competition. In fact, it seems that functionality greatly outweighed the value of a lower price point, so Documentum’s status as an undocumented startup negatively affected sales.

At the same time, the power of the companies buying Documentum’s software was very high. Each system had to be tailored to meet individual client’s job needs, so a somewhat monopsonistic situation arose in which many sellers would pitch to the single buyer. Again, in cases like this, it is difficult for a company that is essentially unproven to claim business from those that have a solid track record.

Aside from the power of buyers and the extent of rivalry in the industry, ECM firms were relatively...