There’s been a lot of chatter about EMC buying Kazeon and it’s about time that I weighed in.  Most of the talk has centered on the rumored price of the acquisition – depending on who you believe, EMC paid anywhere from $55 million to over $100 million for Kazeon.  Now, Kazeon was a private company that never revealed its revenue numbers publicly.  I’m in the camp that believes revenue was less than $10 million annually.  I’m also in the camp that believes that the purchase price of Kazeon was just enough to make it funders whole (again, depending on who you believe, that is somewhere between $55 million and $75 million). 

At the end of the day, the price was high, and many people were surprised.  I think EMC can justify the high price for a few reasons:

1. EMC’s current product set for eDiscovery (documtum and eMailXtender) simply isn't getting the job done in real deployments.

2. The eDiscovery services group at EMC was likely losing revenue opportunities because the product set was not working – with Kazeon, there is a band-aid, a tool that can do some short-term good while the product set evolves.

3. In order to capitalize on eDiscovery revenue opportunities for the services group, EMC was likely giving away software for free – with Kazeon in place, they stem the tide there and don’t need to give software away.

So, even though EMC is technically overpaying for Kazeon in some ways, the company can certainly justify the price in terms of increased services revenue and ending the software-giveaway.

Now, EMC must grow Kazeon into scalable, enterprise-grade software.  What I like about the deal is that EMC has thrown down the gauntlet and proclaimed that eDiscovery is of real strategic importance; I like that because it aligns with customer pain points and I believe that customer-centric companies win in the end.  I look forward to seeing competitive responses from CA, IBM, Open Text, and Oracle.

Let me know what you think.