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Analyst: Nick Patience
Sector: Enterprise Software
Date: 24 Jan 2005

It's been almost two years since content management software company FatWire became the surprise winner of an auction for the principal content management assets of the bankrupt divine Inc. And since then it has learned a lot about what it means to absorb a company that is considerably larger than your own and with a significant international presence. But FatWire claims not to have lost a single customer of its old UpdateEngine content management system. And although only roughly one-quarter of those have upgraded to the Content Server system it bought, it provided FatWire with a rich maintenance stream and an international business to hedge against regional downturns.

Impact assessment

The message
FatWire has absorbed the impact of acquiring the assets of divine's Content Server product, which greatly increased the size and scope of the company. It has seen a particularly strong performance in Europe.
Competitive landscape
FatWire has traditionally gone up against Vignette, because it has a similar approach - applications built atop a Web content management (WCM) system. However, Vignette's business is increasingly being driven by its document and records management products as much as the WCM software. Others include Interwoven, Percussion, RedDot and Stellent.
The 451 Assessment
As we mentioned, FatWire has talked about content-driven application longer than any other content management company of which we're aware. That said, we think until it bought and assimilated Content Server, it didn't really have the product depth to back up its vision.

Context
Content management is a slow-growth business these days and even those that grow by acquisition can sometimes find it tough to sustain growth after the initial spurt the acquisition provides. But FatWire reports strong progress in Europe, which currently accounts for more than 50% of its revenues and is mainly a midmarket play. That's in part because the European Content Server sales team has remained intact for many years, even predating divine's ownership.

Most Content Server developers were based in Burlington, Massachusetts, and FatWire kept them there while it integrated the products. However, it has now closed that office and brought all development back to its Mineola, New York, headquarters, bar a few people working from home in Massachusetts. It's the last piece of cost-saving restructuring of what was divine's business. FatWire did sales of $22m in 2004 and is just about at the breakeven point. We think that is slightly behind what the company and investors envisaged in 2003 when they bought the divine assets. It puts it on a par with a rival like RedDot Solutions, which appears to be growing faster. The two companies also have roughly the same geographical revenue mix.

While the large players (IBM, EMC-Documentum and so on) will gradually take over the basic management of content - which can be characterized as simply getting a grip on content, often for compliance reasons - the smaller players are seeking opportunities higher up the stack.

And so, like many of its rivals, FatWire is focusing on creating software applications to be managed by marketing and other business professionals, rather than having their management be the preserve of the IT department. However, unlike some of its rivals, FatWire has been talking about such applications for at least four years - well before both the start of this broad trend and its acquisition of Content Server.

The problem with having marketing people change Web-based applications - and remember, many of them are still not able to change content with IT intervention - is that the business logic is often hard-coded into the application templates. The templates are usually written in a scripting language, such as ASP, PHP or JSP (in FatWire's case it's JSP) and so to change the application a programmer is still required. And if companies haven't got as far as building these applications and still use their website purely for content, which many companies do, then the webmaster is still the bottleneck in the process.

Products
FatWire launched Content Server 6 (CS 6) in November 2004. New features included JSR168-compliant portlets for Web content and document management functions and an enhancement to the existing InSite Editor tool that enables content to be edited from the front end of the website. Also new is SiteLauncher, a new interface to an existing capability within Content Server, which enables companies to quickly rebuild websites with different combinations of existing components, all the time managing the various interdependencies between components.

Perhaps more significant to FatWire's long-term future were a couple of releases in late 2004, aimed at ease of use and the midmarket. FirstSite, which is also included in CS 6, is a set of pre-built templates, based on best practices learned over the years and already used in FatWire's training classes. It is also used in some of FatWire's applications targeted at vertical markets, more of which later. It is a way of getting a simple website up quickly and relatively cheaply, but also a foundation to build something much bigger.

The other release was CS Express. It is the entirety of the stack that comprises Content Server - including FirstSite, Engage and DocLink - but with a restricted license. It is aimed mainly at the North American channel market. It will also be made available in the European channels, but they have been more successful for FatWire than their US equivalent, so the focus will initially be more in the US. CS Express is limited to one website, based on the IP address, and includes a few developer licenses. There is no CPU restriction as such, but in practice once a customer gets to about eight CPUs, FatWire will insist it pay for the full Content Server product.

Markets
FatWire is focusing on two vertical markets initially: healthcare and travel. For healthcare, it worked with a couple of consulting companies that specialize in the market to launch what it calls eHealth Accelerator. This set of pre-built modules for Content Server has clinical content supplied by Greystone.Net to highlight the particular specialties of the hospital with the aim of attracting patients. It is a lower-priced package than FatWire would normally sell, taking into account hospitals' limited IT budgets. Customers include George Washington University Medical Faculty Associates and Rush University Medical Center in Chicago.

For travel, FatWire has worked with Nurun, one of FatWire's 20 reseller partners in the US. It has a booking engine that it sells to travel agents. FatWire is providing the Web content management software, including the FirstSite package. Other likely markets are manufacturing, retail and media and entertainment.

Sales
The sales teams of divine in Europe and the US had markedly different fates after the acquisition. While the European sales team has largely been in place as far back as Content Server's ownership by Open Market (the owner before divine), the US sales team was essentially dismantled after the acquisition. It has been built back up and is now led by Charlie Giametta, who joined FatWire from EMC-Legato, where he had run one of its regions prior to the acquisition by EMC.

There is also a difference in the partner landscape. FatWire's licenses sales are higher in Europe because the bulk of the implementation work is done by partners, whereas in the US it does more consulting itself, so the mix there is about 50-50 between licenses and services. The fourth quarter brought 18 new customers to take the total to about 450. The average sales price is slightly lower than it used to be, at about $100,000. That's due in part to the aforementioned FirstSite and vertical market focus.

Competition
FatWire has traditionally gone up against Vignette, because it has a similar approach, i.e., applications built on top of a Web content management system. However, Vignette's business is increasingly being driven by its document and records management products as much as the WCM software. FatWire claims its advantage over Vignette is the maturity of its J2EE stack, which is now on its firth versions (both Content Server and FatWire's original UpdateEngine product were based on J2EE). Vignette's V/7, launched in the first half of 2003, was its first truly J2EE-based system.

FatWire claims not to see Interwoven and Stellent as much because they are going more after infrastructure than applications, although Interwoven has a very similar applications strategy to FatWire, at least with its Web content management products. Others that are direct competition include Percussion Software and RedDot.

SWOT analysis