Last week Iron Mountain (IRM) announced it had found a buyer for most of its Iron Mountain Digital technology assets -- the Cambridge, U.K, based Autonomy Corporation.

The price tag of $380 million USD includes IRM’s hosted ediscovery platform, its NearPoint on-premise archive, the enterprise cloud-based Connected backup and recovery solution for PCs or Macs, and LiveVault, a cloud-based, large scale server and application data backup and recovery service. The deal does not include IRM’s medical imaging archive service or its technology escrow business. They will also retain the Digital Record Center for Images, a hosted image archive for documents IRM scans for its clients.

Why Iron Mountain Sold

Essentially, the decision to sell came down to the IRM board concluding, after a comprehensive review of the business, that they could not continue to invest in a competitive software market and meet their stringent financial goals. An Iron Mountain spokesperson said this review was begun last Fall.

Also, increasing pressure earlier this year from major shareholders who believed IRM was not competing effectively as a software provider and the desire of those shareholders to get the management team to improve profitability by focusing on growing its core business, physical storage and information management (IM) services was a contributing factor.

Indeed IRM had been struggling for ten years to knit together a software division, primarily through acquisition, in the face of stiff competition from Autonomy, EMC, IBM, Symantec, and many others, with not much profit to show for it – especially compared with the North American physical records business which is the company cash cow.

Why Autonomy Bought

According to Autonomy’s press release, the deal will add more than “six petabytes of data under management and more than 6,000 customers to Autonomy's customer base, bringing Autonomy's private cloud data to over 25 petabytes and total customer base to over 25,000.”

Dr. Mike Lynch, founder and group CEO of Autonomy, commented, “Processing customer data in the cloud continues to be a strategic part of Autonomy's information governance business. We look forward to extending regulatory compliance, legal discovery, and analytics to a host of new customers as well as enabling the intelligent collection and processing of non-regulatory data from distributed servers, PCs, and especially tens of millions of mobile devices. This will afford the opportunity to bring to these customers the power of IDOL's meaning-based technology."

Autonomy Acquisitive and Affluent

According to all of the major IT research analyst groups (including Forrester, Gartner and IDC), Autonomy is a leader in the archiving, ediscovery, enterprise search, and Web content management sectors. It is highly profitable, and even after the IRM acquisition closes, Autonomy will be sitting on a pile of cash estimated to be more than $700 million USD - much of it earmarked for more acquisitions.

Autonomy began making its mark with the IDOL enterprise search capability over a decade ago. Dr. Lynch by most accounts is a brilliant visionary and leader whose team has made several strategic investments over the past six years by acquiring technology companies to round out the firm’s information management and governance portfolio including the search engine Verity in 2005, archiving vendor Zantaz in 2007, content management solution provider Interwoven in 2009 (for $775 million USD), and several smaller deals.

Challenges for New Autonomy Customers

As a front-end search capability for Autonomy’s ediscovery business, IDOL has been a great success. Autonomy’s strategy of integrating IDOL into all of their other acquired solutions has proven to be more challenging. Some Autonomy clients report they are still using Verity search for their large on-premise archive implementations.

With the addition of NearPoint from IRM, Autonomy will have two on-premise solutions along with its existing hosted solution for customers to choose from. Some customers with extremely large amounts of content – more than 1 billion records – have complained about scalability and cost issues for both Autonomy archives. Autonomy’s existing on-premise and hosted archives are completely different solutions. Therefore users should not presume cross-functionality or an easy migration path between the two systems.

Highly skilled independent Autonomy implementation consultants caution about the complexity and time needed to get Autonomy’s EAS on-premise archive solution functional – six-to-nine months or more. Whether NearPoint will replace or co-exist with EAS remains to be seen. Any happy NearPoint customers are likely to be pitched on upgrading their search engine to IDOL but will not be forced to migrate to EAS anytime soon or see any disruption in their existing service.

How IRM’s hosted ediscovery solution will fit into the Autonomy solution set is also an open question. Happy IRM ediscovery clients are also unlikely to see any disruption in their existing service in the near term.

Iron Mountain’s New Strategy

The shedding of IRM’s digital assets is the first step that directly impacts IRM clients in a new three-year strategic plan laid out by returning CEO Richard Reese in a series of press releases and conference calls last month.

“By no means are we getting out of the technology business.” said Reese emphatically. This strategy represents a “shift in capital allocation”, a return to growing the golden nest egg which the North American physical business represents and a shift towards becoming an even more focused technology service provider and channel partner. “We’re not going to be developing technology products.”

Iron Mountain already has a long history of partnering with major technology providers. The Digital Record Center for Images is part of IRM's suite of document management offerings. This product and the Digital Record Center for Medical Images are current examples of how IRM will offer their customers technology in the future - that is, as a managed service. The medical image archive is powered by HP’s Medical Archiving Solution (MAS), and the hosted image archive is run with IBM’s Content OnDemand software.

Reese noted that “The Big Cloud Race” is one they can’t win, especially if IRM is unable to remain a leader in the space, i.e., number one or two. As a technology channel partner, Reese said it was IRM’s intention to remain “technology agnostic”. However, he did not rule out the possibility of partnering with a single technology provider if the right opportunity presented itself.

Iron Mountain will continue to provide professional services and consulting for customers in key ediscovery, policy and compliance process and governance areas. This gives IRM more of an opportunity to represent the needs of its customers and not vendors. “We don’t want to be a software sales force,” Reese said. “Our ‘secret sauce’ is understanding the compliance and information management space as well as the legal requirements our customers face and helping them drive their costs down.”

Bottom Line

• Iron Mountain was unable to compete as an information management software developer and provider at the highest level which management, shareholders, and ultimately, customers had the right to expect from them.
• IRM would not have been able to effectively match the big four IM vendors -- Autonomy, EMC, IBM and Symantec -- in breadth of functionality, software sales acumen, or continued M&A activity. For example, Symantec just announced last week that it has acquired ediscovery software provider Clearwell for $390 million (USD).
• New Autonomy customers are unlikely to see any near-term disruption in services. Meanwhile, expect Autonomy’s sales force to aggressively push integration of IDOL and other products in their growing portfolio.
• Exiting the software business will allow Iron Mountain to focus on its core physical business and its technology services provider and consulting businesses, which will more than likely allow them to serve their customers better in the way that highly successful technology services and consulting oriented companies such as CSC, Fiserv and CapGemini are able to do.
• Iron Mountain will continue to provide customers support for their physical and digital information management challenges and continue to offer cloud services as part of their larger portfolio while maintaining their cloud for customer data as a technology services provider or hosting other companies' technology and delivering it as a managed service.
• Divesting and then subsequently partnering with technology providers allows IRM to still serve as a one-stop shop for managing physical and digital content but it changes their focus from software development to policy advisement and service delivery.
• There are lots of opportunities for professional services and consulting firms in the information management and governance space. Few user organizations are prepared to manage all of the business process, compliance, cultural, IT, legal, policy and regulatory challenges and requirements they face on their own. It remains to be seen how Iron Mountain will approach these opportunities.

Action Item: New Autonomy users should not be overly concerned about short-term disruption of services. However, users should be prepared to review their existing Iron Mountain contracts and consider alternatives in the event that Autonomy attempts to “strongly encourage” unwanted or unnecessary upgrades or offers unfavorable terms. Likewise, Iron Mountain clients with “bundled” contracts that now cover products or services going to Autonomy will need to review those contracts and be prepared to apply leverage by requesting “loyalty” discounts, services and consulting discounts, or seek alternatives if favorable terms are not offered.

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