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Business Trends on Converting Paper Processes to Electronic Format

2017 marked another strongyear for the document imagingindustry. Yes, parts of themarket continue to mature, andtherefore be submitted toincreasing price pressure andcompetition, but there stillseems to be pockets of growthfor innovative and aggressivevendors. The MFP channel, forexample, continues to producestrong results for its imaging-centric ISV partners like Square9 and DocuWare. Also,Harvey Spencer Associates(HSA) has projected a return todouble-digit growth for sales ofcapture software, as the set oftechnologies HSA defines asCapture 2.0 starts to emerge.

The top story of the yearhowever was not one ofgrowth, but one of re-organization and re-birth. Yes,a new Kofax has risen out ofthe ashes of Lexmark EnterpriseSoftware (LES). At its peak LESwas close to a pro forma $700million business. The foundationof LES was PerceptiveSoftware, which Lexmarkacquired in 2010, and thecapstone was Kofax, whichLexmark bought in 2015 for $1billion. However, less than sixmonths after the deal for Kofaxclosed, LES was, for all intentsand purposes, orphaned whenLexmark announced it was

considering selling its softwarebusiness.

It took about a year and ahalf for the situation to workitself out, and it culminated withLES (which had by that pointbeen renamed Kofax [see DIR12/9/16]) being sold for anestimated $1.5 billion to theequity investment firm ThomaBravo. Yes, that’s the same firmthat owns Hyland Software.Thoma Bravo left the majorityof the capture technologyintact as Kofax, which is stillbeing run long-time CEOReynolds Bish. Thoma Bravotook Perceptive, Brainwarecapture, and some otherpieces and melded them intoHyland. Where this is going tolead in the long run remainsanyone’s guess, but thecompanies might make aninteresting target for KonicaMinolta, which has strongpartnerships with both Hylandand Kofax, or perhaps bycombining the companiesThoma Bravo could puttogether an IPO touting acompetitive position againstOpen Text, which has morethan doubled its stock valueover the past five years.

Speaking of Open Text, inJanuary 2017, it closed on adeal for the former Enterprise

Content Division (ECD) of EMC,which it ended up buying fromDell. Open Text was rumored tobe in the bidding for Kofax, butthe ECD integration, which sofar has looked like a blendingrather than a gutting, wasprobably tying up too manyresources.

The other big financial story inthe market in 2017 wasEphesoft taking on $15 millionin funding from MercatoPartners, a Salt Lake City-based firm that focuses oninvesting in and growing mid-sized companies. Although thefunding has been presented asa way to continue themomentum that the LagunaHills, CA-based capture ISV hasused to grow to more than $15million in annual revenue sinceits founding in 2010, we’vealready seen severalmanagement changes sincethe deal was announced inJuly. This has included thedepartures of CEO Don Field,VP of Worldwide Marketing TimDubes, and SVP of BusinessDevelopment RichardBosworth, three seniorexecutives with a history atKofax, where Ephesoft CTOand Founder Ike Kavas, who isnow also the CEO [see DIR12/15/17], used to work.

We also saw a fairly comprehensive reorganization atABBYY, which in January named Ulf Persson as CEO,replacing Sergey Andreyev who had held the positionfor 17 years. The move was part of an effort to create amore globalized organization to replace the provincialoperations that have traditionally driven the company.ABBYY also named several other corporate-wideofficers [see DIR 7/21/17]. In the U.S., Arthur Whipple wasnamed president of ABBYY’s North AmericanHeadquarters with Dean Tang and Joe Budelli beingmoved to new roles focused on global accounts.

High-volume scanner manufacturer ibml also saw achange at the top as Derrick Murphy, who had beenCEO since taking over from his father in 2006, was letgo by the board and replaced by long-time Kodak (andthen Kodak Alaris) executive Martin Birch [see DIR5/12/17].

On the product front, December saw the introductionof M-Files 2018, and its much anticipated IntelligentMeta Data Layer (IML). Buzz for the software startedbuilding in June when M-Files announced that it hadlicensed ABBYY’s Smart Classifier engine, which was tobe incorporated in the next-generation of M-Files’ ECMplatform [see DIR 6/30/17]. In August, M-Files followedup with the acquisition of a natural language processingand AI specialist Apprento [see DIR 9/1/17]. The IMLfunctionality in M-Files 2018 is designed to run acrossmultiple repositories and structured data systems, andusers are assisted when tagging files. Once tagged,files and items can be incorporated in ECM processeslike workflows and records management [see DIR12/15/17].

Top Image Systems (TIS) also introduced a product ithad been talking about for at least a year—a cloudversion of its eFLOW AP invoice processing software.Able to be integrated with SAP ERP platforms, eFLOWAP on the cloud made its debut at an SAP Biz.ONEevent this fall. Biz.ONE is SAP’s mid-market platform,and it is sold through a reseller channel. SAP is workingwith TIS to introduce the software to this channel. This isan important release for TIS, which has seen itstraditional on premises capture business erode andthrough three quarters reported revenue that was down11% YOY.

Analytics has become a buzzword in our market, witha lot of ISVs extending their capabilities to include moremonitoring. We’ve also seen capture ISVs discussutilizing their software to thoroughly analyze documentlibraries that might only have basic meta data attachedto them. In 2017, Reveille Software, a long-timeapplication performance management ECM andcapture specialist expanded its software to includeanalytics in areas like customer experience and userbehavior. And like its APM offering, Reveille’s analyticssoftware has the ability to take action to correct a

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Vol. 29, No. 1

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perceived problem or bottleneck [see DIR6/9/17].

Analytics has always been a component ofdigital mailroom solutions, but with its IntelligentDelivery Services (IDS), which were announcedearlier this year, Ricoh has taken things to thenext level. Not just a piece of hardware andsoftware, IDS includes proactive consulting byRicoh to help ensure that mail is beingprocessed and delivered in the most efficientand effective way [see DIR 2/3/17]. IDSincorporates hardware from OPEX andcombines physical and digital mail deliveryalong with process re-engineering.

In the hardware market, we saw Neat, a long-time leader in units shipped in the personal(sub-$400) scanner segment, exit the scannerbusiness to focus on its capture and documentmanagement software [see DIR 9/1/17], whichwas actually the foundation of the company.Meanwhile, Kodak Alaris launched its new “S”series of scanners, which is being introduced asa replacement for the “i” series that has beenon the market for more than 15 years. The “S”can be associated with a variety ofcharacteristics of the new scanners, which aredesigned to be tightly integrated with Alaris’new IN2 ecosystem. The new “S” seriesscanners feature on-board image processingand a new Web-based software applicationdesigned to help them better be connected tocloud-centric software environments [see DIR10/13/17].

Fujitsu Computer Products of America’s(FCPA) sister company, KnowledgeLake, whichhandles software development and sales forPFU America, released a new cloud captureservice, which is basically KnowledgeLake’sCapture Server Professional running on Azure.The service is being brought to market througha free trial program [see DIR 11/3/17].

While cloud capture is still in its nascentstages, we certainly saw some signs that cloudECM is reaching a tipping point in terms of end-user adoption. DocuWare, for instance, a $50-million plus ISV focused on mid-market ECM,expected to end 2017 with more than half itsnew customers adopting cloud solutions. This isquite a remarkable rise over 2014, when only7% of its new customers were opting for thecloud [see DIR 11/3/17].

So, those are some of the top stories that wesaw emerge in 2017. Let’s see how they

compare to our predictions for the year, whichwe published last January [see DIR 1/6/2017]:

Nuance does something big: Well, no thisdidn’t happen, not yet. Nuance Imaging got offto a rocky start in 2017, reporting fiscal Q1revenue that was down 15% YOY. Its historicallyhigh margins dropped slightly as well. Thecompany blamed a sales re-organization,which it took steps to rectify. Then a summermalware incident, which affected NuanceImaging’s ability to process orders, alsonegatively affected performance. For its fiscal2017 (ended Sept. 30) Nuance reportedrevenue that was down 10% YOY and marginsthat were down 5%. In a move that we believeto be unrelated this performance, Mike Rich,who had served as general manager ofNuance Imaging since joining the company in2011 through the acquisition of Equitrac, retired.

We heard of Rich’s resignation in Novemberand the company has yet to name areplacement, so maybe they are still planningsomething big to be coordinated with theappointment of a new Imaging GM. (Long-timeNuance CEO Paul Ricci is also due to retire atthe end of March.) Nuance has never been oneto stand pat in the face of eroding revenue. Weknow Nuance has promised 12 new Imagingproduct releases in 2018, but we expectsomething more as well. Stay tuned. Verdict:Incomplete.

Open Text makes an ECM/imagingacquisition: Well, basically I thought Open Textwas going to buy Kofax and Perceptive fromLexmark, but apparently the EMC ECDacquisition kept them too busy. Perhaps they’llbuy Hyland and Kofax from Thoma Bravo atsome point down the road. Verdict: Wrong.

Major ECM/capture acquisition by ahardware company: Although hardwarecompanies like scanner and MFP manufacturerscontinue to seek to diversify their businesses,there wasn’t any huge vendor acquisition of asoftware company in 2017. Perhaps, the fate ofLexmark has scared everyone off for now.About the biggest thing we saw wasKYOCERA’s acquisition of imaging servicebureau and reseller DataBank, whichrepresented the culmination of a partnershipannounced in 2016 [see DIR 11/4/16]. This nicelyexpands the MFP vendor’s ECM footprint, butas far as ISV’s went, we mainly sawpartnerships continue to gain momentum, whichmay be for the best. Verdict: Wrong

Notice: No part of this publication may be reproduced or transmitted by any means, electronic or mechanical, without written permission of RMG Enterprises, Inc., Erie, PA, USA.

Notice: No part of this publication may be reproduced or transmitted by any means, electronic or mechanical, without written permission of RMG Enterprises, Inc., Erie, PA, USA.

Notice: No part of this publication may be reproduced or transmitted by any means, electronic or mechanical, without written permission of RMG Enterprises, Inc., Erie, PA, USA.

by RPA are typically described as “repetitive”and “rules-based.” This can includeprocurement, HR and IT-related processes, aswell as collecting information from externalWeb sites and other systems for analytics. Todate, RPA has been focused primarily on low-level tasks the require little intelligence, but RPAvendors and analysts have talked aboutmoving the technology to the next level—andadding cognitive tools or intelligence.

If you go back to the definition of RPA,automation to replace human labor is reallywhat the automated data capture market hasalways addressed. One level of addingcognitive tools or intelligence to RPA is theintroduction of document capture. At the ABBYYTechnology Summit in October, we saw apresentation by RPA ISV UiPath, which partnerswith ABBYY to address document processes. AKPMG executive also spoke about how hiscompany is embedding ABBYY’s tools with in itsRPA solutions.

RPA is a hot market. According to GrandviewResearch, its value will reach $8.75 billion by2024 and Gartner says over 2,000 companiesare already using RPA. That said, the RPAmarket was estimated to be less than a halfbillion dollars this year, so RPA companies areclearly aiming for growth, and documentcapture seems to be one avenue towardachieving that. For document capture vendors,RPA represents a highly publicized, highlyvalued market to piggyback their technologyon. If we are reading the tea leaves correctly,there could be an opportunity to turn dollarsbudgeted for a mainstream technology like RPAinto capture dollars by rebranding capture as“cognitive RPA for documents,” or somethingalong those lines. Look for this combination oftechnologies to take off in 2018.

2. Capture starts to move more rapidly tothe cloud: We’ve already hit the tipping pointfor ECM in the cloud, especially in the mid-market. Capture, however, has a couple ofthings working against it. First, it’s traditionallybeen more of a high-end implementation, andthe cloud is often more suited to the mid-market,where internal IT departments aren’t typically asstrong. Second, because it’s so processorintensive, capture can be cost prohibitive to runon the cloud. That said, as more ECM moves tothe cloud, it only makes sense that users willwant to run capture on the cloud too, and theprice of server power should continue to drop.We expect at least double-digit adoption ofcloud capture by new users in 2018.

More adoption of intelligent capture inhealthcare: This prediction may have been abit idealistic, as it has been my hope for yearsthat the healthcare market would move moreaggressively toward creating shareable patientdata—utilizing advanced capture to convertdocuments into this data. Unfortunately,healthcare systems are still primarily records,and not data, driven. That said, there remainshope of eventually creating universal sharablepatient records and I had at least oneconversation in 2017 on this topic. It was withIBM and involved utilizing Watson to minepatient records. Verdict: Hopeful

Mid-market embraces crowdsourcingwithout knowing it: This was based on thepremise that users who adopted cloud capturewould want to incorporate advanced dataentry that would be too complex to set up inmost first-generation cloud-based captureapps. The problem is that we haven’t seen aton of adoption yet of cloud-based capture, but,still, we think the premise is strong andbusinesses like Captricity and ScaleHub thatoffer crowdsourced data entry as an element oftheir cloud capture solutions continue to grow.Verdict: On the right track.

Our 2017 predictions were a mixed bag with acouple at least still waiting to be worked out. In2018, we expect the market to continue toevolve. One of the terms that we heardintroduced last year was “capture services” asa natural outgrowth of the “content services”label introduced by Gartner. While we don’texpect capture services to completely reinventthe market, there is clearly a growing demandfor more modern architected solutions, and weexpect to see a bit of a changing of the guard.We also think hardware companies are stilltrying to figure out where they fit in the wholeECM and capture software picture. As we’vesaid before, hardware vendors are big, havelarge customer bases, and are clearlyscrambling to adjust in the face of decliningpaper usage. While they may have backed offa bit in their M&A related to ISVs in 2017, wedon’t expect that to last.

With that all said, following are our predictionsfor the 2018 document imaging market:

1. Robotic Process Automation (RPA)embraces capture: For those of you whohaven’t been following RPA, it is basically theuse of computing power to mimic and replacehuman labor. Tasks currently being automated

and failed to establish a North Americanfoothold. After a challenging start to its NorthAmerican efforts, German ECM ISV ELO DigitalOffice is hoping that changes to its businessplan and improvements to its product enable toit to carve out a place for itself in the U.S.market in 2018.

“When we first opened our U.S. office inBoston in the summer of 2016 [see DIR 8/19/16], Ihad expectations that North America would bethe same as the European market,” said SzilviaHorvath, CEO of ELO Digital Office Corp., theISV’s North American subsidiary. “But, we foundthat how we were used to targeting customersand building a channel in Europe would notwork in the U.S.”

On the customer front, Horvath noted thatrelying on face-to-face meetings at tradeevents is not as viable of a strategy in the U.S.“We found that in the U.S., your onlinemarketing and communication presence ismuch more important,” she said. “To addressthat, we’ve started doing things like offeringWebinars.”

ELO has also partnered with U.S.-based ECMfocused organizations like AIIM and HarveySpencer Associates (HSA). “We are globalpartners with AIIM and will be participating intheir annual conference this year [being held inSan Antonio April 10-13],” said Horvath. “Wewill be an exhibitor and host a roundtable. Weare also doing a lot of branding work with AIIMand Webinars as well. We have worked withHSA on a white paper and on building our newpartner strategy.”

ELO has moved away from requiring itspartners to exclusively carry its ECM software.“If they have DocuWare or M-Files or OpenText, that’s okay,” Horvath said. “We just wantthem to look at what we are doing and if acustomer is a better match for our software, wewant them to go with us.

“We’ve also expanded the types of resellerswe are targeting. In addition to systemsintegrators and VARs, we are trying to partnerwith pure capture software players. We arealso talking to scanner and MFP vendors—some of which we already have agreementswith in other parts of the world.”

Product differentiation and successHorvath discussed the differentiating factors

that ELO can offer end users and resellerscompared to other ECM vendors. “For resellers,

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3. A scanner or MFP vendor makes acapture or ECM software acquisition: Irealize I make this prediction almost every year,but things have just been too quiet. I think it’ssafe to say that Lexmark’s blow-up haseveryone a bit scared, but large hardwarevendors are not going to stay scared of M&Afor long. (They may be more scared ofdeclining revenue.) Even relatively small MFPplayers like Toshiba and Sharp seem to havestrong growth and diversification initiatives,and we have to think imaging and capturesoftware is on somebody’s radar.

4. Open Text makes a major capture/ECMacquisition: Why not keep doing what worksfor them? Sure, they sat out the Kofaxacquisition, but it seems the integration of EMCECD is going well enough that Open Text canset its sights on what’s next. We realize OpenText has expanded outside of traditional ECMfor many of its recent acquisitions, but thefoundation of the company, which continues togrow both revenue and income, is ECM, andthere are quite a few aging ECM and capturecompanies in the market with install bases thatwould fit nicely into Open Text’s mix.

5. Kofax gets back in the acquisition game:CEO Reynolds Bish promised that once thecompany was operating with strong margins,he would start once again looking foracquisitions to grow Kofax. Similar to OpenText, during recent years, any growth Kofax hasshown has been through acquisition funded byprofits rather than organic sales, so it makessense for Kofax to head back down that pathas Bish positions it for its next major move.Kofax already has an RPA software offering inKapow, so maybe it will do something tocomplement that. A small AI acquisition mightbe a good place to start.

Well, that’s what we think will happen in 2018.Once again we are looking forward to coveringall the news throughout the year and seeing ifany (or all) of these predictions comes tofruition.

The track record of European ISVs in thecapture and ECM market making a successfulexpansion into the U.S. market is spotty at best.For every DocuWare and ReadSoft, there areprobably five European vendors that have tried

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we are very focused on lead generation,” shesaid. “We do not have a direct sales team, sowe are focused on helping resellers and willalways be there for them.

“On the product side, we have the same basicfunctionality of most ECM products on themarket. We can store and retrieve files andimprove efficiencies through workflows. Onedifferentiator is that we are moving moretoward information management and workingon pre-packaged business solutions in areaslike e-mail, contract, and invoice management.With the e-mail management solution, a userdoesn’t even have to know they are usingELO—they only see their Outlook interface andour software runs in the background. We alsorecently added a visitor management solution,which enables users to create visitors’ badgesand track what the wearers are doing.”

Horvath shared with us some of the successstories ELO has had so far in the U.S. One iswith Flexitallic, which manufactures industrialgaskets and sealing products. “They areheadquartered in Houston and we started ahuge invoice processing implementation withthem there,” she said. “We’ve expanded it toCanada and the U.K. and are just rolling out asystem in China.

“Juice Plus+ is another international companywith headquarters in the U.S. We originally setup a document storage and retrieval system tohelp them move toward a paperless office. Weare now working with Juice Plus+ in Italy tohelp them earn government certification byleveraging our software.”

ELO Digital Office Corp. has also done animplementation with NH Generator Installers,a New Hampshire-based back-up generatorspecialist. “When they are installing or doingmaintenance on a generator, it’s often in asituation where the electricity is out, but theirworkers still have to access customer andmachinery information. Our software enablesmobile devices to have offline repositoryfunctionality so workers can immediatelyretrieve information when they need it.”(Although ELO does not currently offer a SaaSversion of its software, NH Generator hosts thesoftware on its private cloud.)

Most recently, ELO announced animplementation with Axioma, an enterprise riskmanagement software provider withheadquarters in New York City. “They do a lot of

research for their clients and really like thecollaboration and workflow capabilities of oursoftware,” said Horvath. “They had been usingan open source ECM solution but neededsomething more comprehensive.”

Axiom is a $20 million business with locationsin Europe and Asia as well. The ELO softwarewas sold to them through Ovitas, a Burlington,MA-based ELO partner.

Key ImprovementsELO offers three flavors of its software:

ELOffice for individuals and small business,ELOprofessional for the mid-market, andELOenterprise for larger organizations. In theU.S. market, ELO is mainly focusing onprofessional and enterprise sales. “We wouldlike to sell office mainly online through Webshops,” said Horvath. ELO recently announcedseveral improvements in its latest version ofoffice, including automatic back-up ofdocuments to a cloud service and OCR-enabled point-and-click capture of indexingfields.

ELO’s big product news, however, is theintroduction of analytics capabilities into itsprofessional and enterprise products, which isscheduled for the first quarter of 2018. “Oncean invoice is captured and stored in arepository, in addition to a document, it

becomes unstructured information,”Horvath said. “We are adding an analyticsinterface designed to quickly make thisinformation available to users.

“For example, our analytics will enable anaccounts payable manager to quickly identifyoverdue invoices, or a purchasing agent toidentify what contracts are due to expire. Ahuman resource manager could use analyticsto see which employees haven’t had salestraining for a long time. Analytics will beincluded as a standard piece of our product,which I think will be a huge competitiveadvantage. Other ECM offerings typicallyinclude it as an additional feature or module.”

Horvath is confident that as ELO figures outthe key to marketing its software in the U.S.,the company will have success. “Once we findcustomers, and they have a chance to see,touch, and experience our product, I amconfident that they will like it,” she said.

For more information: http://bit.ly/ELOAxioma