Documentum, Inc.

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Documentum, Inc.

6801 Koll Center Parkway
Pleasanton, California 94566-7047
U.S.A.
Telephone: (925) 600-6800
Toll Free: (800) 232-9250
Fax: (925) 600-6850
Web site: http://www.documentum.com

Public Company
Incorporated: 1990
Employees: 893
Sales: $197.6 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: DCTM
NAIC: 511200 Software Publishers

Documentum, Inc. is a Pleasanton, California, company that develops, markets, and supports content management software. Its products allow businesses to create, personalize, organize, and share a wide variety of documents in differing formats simultaneously over the Internet as well as corporate intranets. Documentum customers include some of the largest corporations in the world, including AT&T, Bayer AG, Dow Chemical, Ford Motor Company, Pfizer, and United Airlines. The company has 25 offices located around the world, with a presence in such major cities as New York, Los Angeles, London, Munich, Paris, and Tokyo.

Documentum Origins in 1990

Documentum grew out the research efforts of Xerox Corporation’s prolific Palo Alto Research Center. Established in 1970, PARC brought together prominent researchers to explore “the architecture of information,” resulting in many important advances in the computer world: the first commercial mouse, graphical user interfaces, bit-mapped displays, laser printing, the ethernet network, object-oriented programming, and much of the protocols essential to the Internet. Although the purpose of PARC was to develop new products for Xerox, internal conflicts between researchers and executives over funding and product strategy resulted in the departure of key personnel, who took with them important future technologies (such as the inventor of the Ethernet and founder of 3Com, Bob Metcalfe, and the inventor of graphic user interface, Alan Kay). While Xerox benefited from such developments as laser printing, far too many of PARC’s advances were commercially exploited by collaborators, the most spectacular examples being 3Com, Apple Computer and Microsoft. The latter two used the “point and click” technology of graphical user interface as the key element of their personal computer operating systems. Frustrated by its inability to capitalize on its own research, and stung by criticism in the press and the book Fumbling the Future: How Xerox Invented, Then Ignored, the First Personal Computer by Douglas K. Smith and Robert C. Alexander, Xerox in 1989 formed Xerox Technology Ventures, essentially a venture capital program that would fund and spin-off start-up companies based on PARC research. The initiative was launched and run by a former Xerox executive vice-president named Robert Adams. Establishing Documentum was one of XTV’s earliest efforts, based on in-house software developed in the early 1980s for Xerox’s laser printing division. The document management technology was brought to Adams’ attention and he recruited technical engineer Howard Shao to launch the new company. Shao had been involved with product development at database company Ingres. To help him in the start-up he brought in a coworker from Ingres named John Newton.

Documentum was incorporated in Delaware in January 1990, with Adams serving as chairman and Shao as chief executive. Not only did Xerox provide $3.5 million in seed money it allowed the new company to work rent-free in the back of a Hayward, California, warehouse. Moreover, Xerox lent its credibility to Documentum, giving the start-up access to the chief information officers at Fortune 500 companies. For the first several months the company was staffed by just Shao and Newton, but within two years it had assembled a team and was able to ship its first product, a beta version of its Enterprise Document Management System, which produced $500,000 in revenues for 1992. EDMS was intended to improve the productivity of major corporations by helping them to organize and manage their unstructured information, from text to images. While traditional relational databases managed structured data, essentially information suited for tables, approximately 80 percent of a company’s information, according to Documentum, consists of unstructured information. Given that a company’s storehouse of information could expect to grow exponentially over time, the problem of managing documents and providing employees with a way to access them and work on them was clearly an opportunity for a company like Documentum.

New Leadership in 1993

With a developmental version of EDMS on the market, Shao recognized that it was time to step aside in favor of a chief executive with the skills to take Documentum to the next level, as well as boasting the credentials necessary to raise the next round of funding. It took Shao a year to recruit the man he wanted, Jeffrey Miller. Not only did Miller have a technical background, earning an undergraduate degree in electrical engineering and computer science, he held an MBA and had years of marketing experience. The early years of his career, from 1976 to 1983, were spent in various positions at Intel. He then gained experience with a start-up when he became the vice president of marketing at Adaptec in 1983. Miller next served as a division president at Cadence Design Systems from 1991 until mid-1993 when he joined Documentum. With Miller on board, Shao was able to assume the position of vice-president in charge of product development.

Miller was instrumental in developing a clearer focus on the business of Documentum. While at Cadence he had become familiar with the marketing theories of Geoffrey Moore, author of Cross the Chasm, who focused on how a company could enter a new marketplace, especially a high-technology marketplace, by concentrating on a specific application for a specific industry. For Miller, a start-up like Documentum offering a unique product was an ideal opportunity to apply Moore’s principals, and he hired Moore to serve as a consultant for a month in late 1993. Moore conducted sessions with Documentum’s employees, 30 at a time, during which they identified 75 business processes in specific industries that would be greatly improved by using the company’s document management technology. In the end, the process narrowed the candidates down to one business process to target: the burdensome task of preparing a new drug application to the Food and Drug Administration. Because such an application included hundreds of thousands of pages, it required a considerable amount of time to compile and organize. Documentum estimated that a pharmaceutical company lost $5 million in revenues on a major drug for each week it took to complete the approval process. If Documentum could shave off time by helping to organize the application material, pharmaceuticals would gladly buy its product. Not only would Documentum become entrenched in an important industry, it would establish a base from which to target adjacent markets.

Documentum customized its software to address the FDA application process, then courted major pharmaceuticals Merck and Glaxo. Once they became customers, other pharmaceuticals bought in. As a result Documentum increased revenues from $2 million in 1993 to more than $10 million in 1994, 70 percent coming from pharmaceuticals. With the pharmaceutical business in hand, Documentum expanded its staff significantly in 1994 to bolster support and its direct-sales force. It then hired the former CFO of Borland International, Alan Henricks, to anchor the company’s improved operational structure. The company also took steps to enhance its limited European distribution operations by setting up offices in London, Paris, and Munich.

In 1995, Documentum targeted an adjacent market to the pharmaceuticals: the commodity and specialty chemical industry. From there it was able to move into the discreet manufacturing sector, customizing its technology for aerospace, electronics, and automotive manufacturers, which resulted in customers such as General Motors and Sun Microsystems. Documentum was then in a position to tackle the adjacent market of engineering and construction. The result of this island-hopping strategy was that in 1995 revenues would grow to nearly $25.5 million and the company would post its first profit, $1.26 million. A year later sales would increase to over $45 million with profits of $4.5 million.

Documentum Goes Public in 1996

In 1996, Documentum became the first of the XTV ventures to go public. In February, the company raised $43.2 million on the sale of 1.8 million shares at $24 per share. By early May, it was priced above $45. Although Documentum was now an established business, it had to worry about challenges from large relational database companies, such as Oracle, as well as the possibility that a giant software company like Microsoft might decide to enter the market once a standard architecture had been established. Moreover, the dramatic rise of the Internet forced Documentum to essentially reinvent itself. In addition to employees accessing internal materials, businesses now had to also cater to countless Internet visitors. The increasing reliance of corporations on the combination of the Web and intranet systems, however, provided Documentum with an important driver for future growth. Early in 1996, the company introduced Accelera, which allowed customers to access Documentum’s document repository with a Web browser. But in order to take full advantage of the possibility of document management on the Internet, other enhancements would be required, such as security.

Company Perspectives:

With its proven ability to manage an unlimited volume of dynamic content, Documentum content management technology is an essential component of a scalable e-business infrastructure.

In addition to modifying its technologies to the Internet, Documentum began to transition itself from a document management company to a company dedicated to knowledge management, of which document management was just a component. Simply arranging content would no longer be sufficient; management systems needed to understand the content they were organizing. To support this goal, Documentum acquired Relevance Technologies, a San Francisco content-mining developer, for $36.5 million. Its core technology, Semantic Modeling Architecture, permitted users to locate unstructured text-based information in both internal and external sources. With this expertise, Documentum planned to incorporate a standalone search tool into its products, allowing them to manage email documents as well as a variety of Internet material. The Relevance purchase resulted in a $23.5 million loss in 1998 on revenues of $123.8 million.

Documentum continued to add online capabilities to its products in 1999 and forged alliances with other companies in order to focus on content management that could power e-business. As a result of these expanded offerings, Documentum lost an additional $8.4 million in 1999 on revenues of $128 million. In the first half of 2000 the company was particularly aggressive in creating relationships with both systems integrators and technology partners. For instance, in March 2000, Macromedia Inc. and Documentum formed a partnership to integrate Documentum’s content management system with Macromedia’s Dreamweaver 3 Web authoring platform. Alliances with systems integrators included PriceWaterhouse-Coopers and IXL. For these companies Documentum’s technology became a key component in an overall e-business solution for customers. Miller made clear his long-term goals for the company in a June 2000 interview in The Wall Street Transcript: “The first mountain we want to climb is to become the undisputed leader in the content management business.… In a few years that’s a $3–$5 billion marketplace, so whoever’s going to get the leadership share there is going to be a very large, successful company, and we think we’ve got a great shot to do that.” Many investors were encouraged by the steps Documentum was taking, and as a result bid up the company’s stock in 2000. For the year, the company returned to profitability, posting net earnings of $8.7 million while significantly increasing revenues to nearly $198 million.

Early in 2001, Documentum made some changes to top management. Miller became chairman, replacing Adams who remained as chairman emeritus. Although Miller retained his CEO title, executive vice- president David De Walt became the company’s president and chief operating officer. The company also began to experience a downturn in its business, due in large measure to a weak economy that caused many corporations to cut spending on major information technology projects. High-end software purchases such as Documentum suites were simply put on hold by corporate customers. After the company reported poor first quarter results, investors began to sell off Documentum shares. For the first time in its history the company was forced to cut overhead. In addition to imposing a hiring freeze, it reduced its work force by 12 percent, totaling some 140 jobs.

In August 2001, De Walt took over the reins as Documentum’s chief executive, although Miller retained his chairmanship. De Walt was well suited to leading the company that was now emphasizing its e-business applications. He had been brought in two years earlier as an executive vice president to serve as the general manager of Documentum’s e-business unit. Like Miller, he also combined a scientific background with business expertise. He earned a computer science and electrical engineering degree from the University of Delaware before doing graduate work in finance at the University of California at Berkeley. Although he brought new enthusiasm to the job, in light of economic conditions there was little De Walt could do in the short-term. In October, he oversaw a second round of layoffs, this time cutting close to 6 percent of Documentum’s work force, approximately 57 positions, mostly in sales and marketing. Although times were difficult, Documentum had a solid business that, unlike an ephemeral dot-com company, produced revenues and had proven itself capable of posting healthy profits. With the eventual turnaround of the economy and increased corporate information technology (IT) budgets, there was every reason to believe that Documentum would quickly return to growing its business. With the ever increasing proliferation of information in the world, the need to manage it would only continue to accelerate.

Principal Subsidiaries

Documentum International, Inc.; Documentum Software Europe Ltd. (United Kingdom); Relevance Technologies, Inc.; Nohon Documentum K.K. (Hong Kong); Documentum GmbH (Germany); Documentum F.S.C.