Text from Forbes article below. Also on site www.forbes.com.
Make that paper
go away
By Michael Gianturco
IF YOU LOADED onto a jet
airliner all of the engineering
documentation for that aircraft, the plane would
be too heavy to take off.
It's just as bad at the Food & Drug
Administration. A drug manufacturer looking for
permission to market a new drug has to hire a
tractor-trailer to send in the application.
The solution, of course, is to digitize all these giant
documents. Easier said than done. You have to
integrate computer-aided design files, tables,
charts, images, text and more. Components of
your document, moreover, are spread out
geographically and represent the work of many
teams of individuals.
Documentum, Inc., a software firm in Pleasanton,
Calif., has made a business of attacking this
problem. Its growth in the past three years has
been eye-catching. In 1994 Documentum's
revenues were $10 million; in 1995, $25 million;
in 1996, $45 million. I expect the company to
report revenues near $68 million for 1997. It has
been profitable for the past 13 quarters.
The contents of these monstrous
books change throughout the
lives of the products they
describe. Who changed what, and
when, and why?
Documentum has no small customers. In a typical
installation Documentum sells a software license
to cover 1,000 users and charges $350,000 or
so. The company's core software runs on servers
and is common to all industries. Overlaid on this is
specific software designed by Documentum to
tailor the system for a particular industry.
The World Wide Web is an important driver in
the company's growth. Pages of interest can be
retrieved and made visible anywhere over a
corporate intranet or on a Web site. This beats
Express Mail.
The main selling point is not convenience,
however. It is accuracy. Documentum software
enables managers to monitor, track, control and
audit changes to documents over their history.
The contents of these monstrous books change
substantially during the development and
throughout the lives of the products they describe.
The question will certainly arise: Who changed
what, when and why? Most important, what is the
approved product configuration right now?
When an airline dispatches a ground crew to
maintain a hydraulic cylinder component for a
specific aircraft sitting on the tarmac in Singapore,
these guys need to open the plane's colossal
repair manual at the right place-by computer, of
course-and find up-to-the-minute and precise
information about parts and procedures.
Documentum began business by focusing on the
pharmaceutical industry. Its software is so well
established in that industry that even the sleepy,
paperbound bureaucrats at the FDA are thinking
of buying a copy of Documentum's software. Sell
your tractor-trailer stocks.
It's not hard to get a drugmaker to see the payoff.
If it has a potential blockbuster on its hands, each
day wasted preparing an application to the FDA
could cost the corporation $1 million in gross
profit.
Having woven itself into the pharmaceutical
business, Documentum cannot now be easily
dislodged. Even if a formidable software giant
(Oracle Systems is a plausible foe) were to notice
this software market, it would have difficulty
persuading Documentum users that they ought to
learn a new system. Half of Documentum's sales
each year represent additional business from
existing customers.
From drug companies, Documentum has moved
on to aircraft, chemical and semiconductor
makers. Intel has made the software available to
10,000 of its employees.
Documentum was founded in 1990, shipped its
first product in 1992 and went public in February
1996 at 24. A big winner in the stock was Xerox
Technology Ventures, a venture capital arm of
Xerox, which got in at the very beginning.
At 36, Documentum is trading at a rich 83 times
trailing earnings. Look for year-end earnings (to
be released mid-January) of 48 cents a share. If
the company makes this number, buy a little-not a
lot-on any subsequent dips below 31.
--------------------------------
Michael Gianturco is president of The Princeton
Portfolios. His latest book is How to Buy Technology
Stocks (Little, Brown, 1996). |
