When content management software specialist Vignette announced that it was paying $26 million in cash and $6 million in stock to acquire portal software vendor Epicentric in late October, the deal raised a number of eyebrows, not to mention questions.

What ‘synergies’ is Vignette CEO Tom Hogan hoping to exploit? How will the deal affect users of Vignette’s and Epicentric’s software? And why was Vignette able to pick up Epicentric at such a low price?

The first two questions are, perhaps, the easiest to answer.

Analysts such as Forrester Research’s Nicholas Wilkoff have long argued that enterprise portal software requires some form of content management back-end in order to provide a management

console and workflow capabilities that are simple enough for non-IT staff to use.

“Enterprise portals require content that’s relevant and easy to find, maintained by business users and accurate and standardised,” says Forrester senior analyst Wilkoff.

In order to do that, portal and content management software vendors have been moving in each others’ direction. First, portal software vendors, in particular market leader Plumtree, have been building in basic content management functions into their software to make it easier to use.

At the same time, content management software vendors have similarly been developing portal modules in a bid to exploit this burgeoning market. Vignette, for example, had its Multisite Server offering, but this was only a basic product.

More significantly, they have been cutting deals with each other to provide custom integration between their respective content management and portal packages. That is how the relationship between Vignette and Epicentric originally began.

“The dialogue about some form of strategic partnership was started a year ago ,” says Hogan. “That culminated in the integration of V6 [Vignette’s content management software] and Epicentric about a month or so ago,” he says.

The difficulty for customers is that there are no standards for integrating content management and portal software. As a result, integration is only possible via custom-coded connectors between the content management system and the portal.

For users, this increases the complexity of selecting a content management system for their portal software, limiting their ability to pick their preferred combination of portal and content management software packages. The alternative is the all-in-one package that Vignette will offer with Epicentric that, says Hogan, will guarantee a high level integration.

Hogan certainly needed to take some radical action. Vignette’s quarterly revenues have plunged from a dot-com fuelled peak of $123.9 million in the last three months of 2000 to just $32.7 million in the quarter to the end of September 2002.

The former Siebel Systems vice president of worldwide sales has also cut the company’s losses to a more manageable level and the company has some $200 million in the bank, the remaining proceeds of its February 1999 public flotation.

Falling sales have also encouraged Hogan to make a deep and much needed cut to Vignette’s entry-level licence price – from about $200,000 to $125,000 for the soon-to-be-released V7. However, ‘extensions’ offering additional capabilities will cost extra.

In contrast, privately-held Epicentric has kept its finances a closely guarded secret. Analysts had estimated annual revenues at about $35 million.

But Illuminata’s Stephen O’Grady says that the low purchase price suggests that Epicentric’s sales have been falling during 2002 as Plumtree consolidated its position and platform vendors such as IBM, PeopleSoft and SAP have moved in – squeezing out most of the other portal specialists.

Hogan’s challenge is to convince customers that the deal will bring them additional function and closer integration, while reassuring shareholders that the combined company can win back market share in the portal software market and hold its own in content management.